Capitalism
The free market economy is a system devised to
resolve the basic economic
problem (resources having to be allocated to many
competing users that have
infinite wants) through the market mechanism. The
centrally planned economy is
an economic system where government go through
detailed planning procedures to
allocate resources in society. The Free
Market Economy: The government provides
public goods and services, but in
order to pay for these the government need to
raise some funds this is done
through taxation. The government is also
responsible for the issuing of
money, it’s value and keeping stable prices.
The government are also
responsible for ‘free goods’ (a good or service
available in quantities
larger than desired for zero price) if this is not
regulated the free goods
may be misused or abused. In a free market economy the
government also has
the right to eliminate any monopolies, so a fair competitive
market can be
maintained. The government can also control the activities of
trade unions,
this is because particular firms or trade unions may seek to gain
control
over individual markets. In the market economy the government
should
intervene as little as possible. Government regulation should be the
minimum
required to protect the orderly working of the market economy. The
free market
sees government spending confined to the spending of public
goods. In a free
market economy almost all factors of production (FOPs) are
owned privately. The
government have the responsibility to uphold the rights
of the citizens to own a
property; this is generally done through the legal
system. Free enterprise
exists in free market economies these are when the
owner of FOPs and producers
of goods and services have the right to buy and
sell what the own or produce
through market mechanisms. The government have
little restrictions on what is
brought and sold, and workers can work for
whom the wish, no restrictions exist.
Homeowners can sell their home as
and when they wish and no one can say no as
the choice is entirely theirs.
Businessperson’s and entrepreneurs can commence
firms to their discretion.
Consumers can purchase whatever they wish and no one
can be told to buy one
brand over another. Producers can produce whatever they
want although it
should be noted that they must produce a product that matches
the consumers
specification otherwise it will not sell. Competition between
producers is
permitted and it is this that leads to better quality products. In
a wealthy
free market economy, consumers are faced with many options and
‘trade offs’
(sacrificing on economic good for an other), firms compete with
one an other
on similar goods. The consumers with high income have more choice
than others
in the free market economic as they can afford the more high-end
goods, such
as luxury cars. Society is dealt with differently in each economy,
in the
free market economy price, disposable income (spending money) and
utility
determine whether a good or service is purchased. Centrally Planned
Economy:
This is quite different from the free market economy; actually
it is almost the
complete opposite. The centrally planned economy has
resources allocated by the
government through a planning process. In this
economy, consumers are issued
with a limited amount of money, which they can
spend on a limited assortment of
goods or services. At some stage a centrally
planned economy’s government
could freeze prices so that goods and services
are available to the consumers
even though their budgets are restricted.
However, this is likely to lead to
everyone purchasing that product that has
been priced low, and therefore demand
would rise, which in turn would cause
supply to fall. There are 3 types of
actors in the planned economy, the
planners (usually the government), consumers
and workers. These actors are
all working together in cooperation for the common
good, not for
self-righteousness. In the command economy all FOPs are owned by
the state
with the exception of labour (however labour services can be
re-directed to
the state). Also the command economy contains no private
property. As
resources are given to the consumer, sometimes this can lead to the
state
directing labour into jobs as well as telling consumers what to
consume,
however it is more likely that the government will go to the
producers and tell
them what to produce, this in turn determines the product
available to the
consumer. In the command economy there is little or often no
competition and
this causes substandard build quality of products, as
consumer have to put up
with what they are given. In a command economy, all
prices and incomes are the
similar this is where the perception of first come
first served come into use.
In the command economy consumers have little
choice, as labourers they may be
allocated to jobs in particular regions ore
sectors. They will have restriction
opposed on them so that they cannot
switch jobs. As consumers they have very
little say about what is produced.
Queuing is unavoidable in command economies
as supply is diminutive. There
are no restrictions that the government set about
the quality of a product
unlike the free market economy which has many rule that
have to abided too.
So what are the main differences between command and free
market economies?
To summarise this up I will review my findings. In a command
economy the
state allocate the required resources through a planning mechanism
whereas in
the free market economy resources are allocated through spending
lifestyle of
an individual. Command economies of Eastern Europe having reduced
inequality
in society have had low growth in the past few decades while the free
markets
involve inequality and these provide an incentive for individuals to
become
self interested and profit minded in an attempt to prove ones self
to
another. Quality found in a free market economy is of a higher standard
in
comparison to the type of build quality found in Command economies.
Command
economies have been associated with communist systems whereas free
market
economies have been associated with capitalism.