Business, 10.10.2021 14:00 lizzyhearts

Think of the benefits and write about 100 words comparing free market, mixed, and planned economic system.

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Answer from: babas97

There are four types of economies: traditional, command, market, and mixed (a combination of a market economy and a planned economy). A market economy, also known as a free market or free enterprise economy, is a system in which economic decisions, such as the prices of goods and services, are determined by supply and demand. Command economies, on the other hand, utilize central planning by a central authority to make all economic decisions.

A market economy is an economy in which supply and demand drive economic decisions, such as the production of goods and services, investments, pricing, and distribution.

A market economy promotes free competition among market participants.

Notable benefits of a market economy are increased efficiency, production, and innovation.

The assumption behind a market economy is that supply and demand are the best determinants for an economy's growth and health. These market forces influence what goods should be produced, how many goods should be produced, and at what price the goods should be sold. These factors determine other economic decisions, such as how many individuals companies should employ. The advantages of a market economy include increased efficiency, productivity, and innovation.

In a truly free market, all resources are owned by individuals, and the decisions about how to allocate such resources are made by those individuals rather than governing bodies. This economic theory, known as laissez-faire, believes that governments should have no hand in business and if they do, it most often leads to market inefficiencies. Because governments always have some involvement, there are no recognized economies that are 100% free.

Advantages of a Market Economy

Business Efficiency

Unlike other types of economies, a market economy increases the efficiency of businesses. The government is limited in how it regulates transactions within a market economy and most rules it enacts are to protect consumers, the environment, market participants, and national security.

The limited role of governments promotes increased efficiency and free and increased competition. With the existence of competition, a business tends to do whatever is necessary to lower its costs and achieve a higher number of sales to increase profits.

Because businesses compete with one another, they must determine ways in which to have a competitive advantage so that they can capture a larger market share for their product or service. This leads them to figure out how to reduce costs, improve their product, and so on in order to capture that extra market share.

Answer from: Quest

Externalities or spillover occurs when some of the benefits or the costs of production are not fully reflected in market demand or supply schedules.

Answer from: Quest

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