How Economies Differ
The Market Economy
Pure Market economy- all economic decisions made by individuals and private firms who are both motivated by self interest. Aka capitalist, free enterprise and laissez-faire (translation- 'let things be')
In pure market economies those owning Capital and means of production get very rich, and those who do not get very poor, large socio-economic divisions.
Today there are no examples of pure market economies in the world.
Centrally Planned economy- government planners make economic decisions, little scope for individual choice to influence economy.
Centrally planned economies are no longer pursued by any major economy.
Price mechanism is the process by which the forces of supply and demand interact to determine the market price at which goods and services are sold and the quantity produced.
Characteristics of a market economy;
The Market System
Market- network of buyers and sellers seeking to exchange things.
Product market- market for goods and services.
Factor market- market for the factors of production.
In the product market the buyers are the consumers (constitute demand) and the sellers are the businesses (supply).
Price affected by the level of consumer demand as well as supply by business.
Market economy- price mechanism is determined by consumers & firms only.
Private Ownership of Property
Individuals have the right to own the means of production/resources and can use these to derive income and acquire wealth.
Individuals have the right to sell their property or transfer ownership to someone else under whatever conditions they choose.
Consumers are free to choose how they will spend their income in order to satisfy their wants; ultimately, consumers decide what goods and services will be produced and therefore answer what and how much should be produced.
Freedom of Enterprise
Individuals have the right to use their resources...