Markets

• mixed economies

  resources are allocated by the government and market mechanisms
• Karl Marx

  1. critic of capitalism
  2. Believed capitalists would exploit workers to create wealth
  3. supported command economies
• Adam Smith


  believed if everyone pursued their own best interest, then individuals would be lead by an invisible hand
• Free Rider Problem

  1. there is no incentive to pay for freely accessible goods
  2. discourages businesses and firms to produce these goods as they will not make a profit
  3. public goods must be freely accessible as they are non-excludable
  4. therefore, there are no public goods in a free market economy
• Freidrich Hayek

  1. supported free market economies
  2. resource allocation by an individual decisions would be better than any state planning
  3. Government should not intervene in resource allocation except in provision or protection of public goods
• Free market economies


  resource allocation by the market mechanism through price mechanism
• Command economy

  1. government allocates all resources
  2. markets are centrally controlled
• Free market economy advantages

  1. increases productivity
  2. faster reactions to market exchange
  3. lower prices due to high competition
  4. more innovation (high competition)
• Free market economy disdvantages

  1. increased unemployment
  2. no public goods
  3. competition between workers
• mixed market economy advantages

  1. competition
  2. public goods
  3. reduced monopoly power
• mixed market economy disadvantages

  1. unemployment
  2. lacks perfect information
  3. some income inequality
• command market economy advantages

  1. low income inequality
  2. full employment
  3. public goods despite free-rider problem
• command market economy disadvantages

  1. low productivity of labour
  2. lack of competition