In every economy there are three questions that must be answered:
In this type of economic system, the government makes the basic economic decisions, answers the three basic economic questions, and controls production and wages. Some examples of command economies are North Korea and Cuba. 🇰🇵 🇨🇺
The advantage of this type of economic system is that it is easier to produce goods and make sure everyone is receiving the basic necessities. They are also able to gather resources quickly and on a large scale.
The disadvantage of this type of economic system is that the system is not responsive to consumers' preferences, discourages innovation, and severely limits consumers' choices. This may lead to the development of a black market in command economies.
In this type of economic system, economic decisions are guided by price changes that occur as buyers and sellers interact in the marketplace. The government has a limited role in this system, generally only preventing monopolies. Some examples of market economies are Hong Kong and New Zealand. 🇭🇰🇳🇿
The main advantage of this economic system is that there is a lot of competition, which keeps prices low and offers many options for consumers to choose from. This system is also driven by self-interest, which ensures that the most desired goods and services are produced. Innovation is rewarded.
The disadvantages include a large wealth disparity for individuals living in this economic system and very few public goods.
Mixed economies combine aspects of both free markets and command economies. Private property rights are protected and there is a certain level of economic freedom, but the government can intervene in an effort to meet societal aims and avoid market failures. The United States is a great example of a mixed economic system. 🇺🇸
An advantages of this type of economic system is that the government can own some public programs like education and transportation, while still keeping the benefits of a market economy, such as encouraging innovation and allowing prices to depend on supply (producers) and demand (consumers). Another advantage is that it rewards the most efficient producers with the highest profit.
This type of economic system can take on the disadvantages of other types of economies depending on which characteristics it emphasizes. For example, if a certain mixed economy emphasizes the free market aspect, it can leave some members of society without any government support and make businesses hard to regulate.
Thousands of students are studying with us for the AP Microeconomics exam.join now
Browse Study Guides By Unit
1.2Resource Allocation and Economic Systems