5). Free market economies, mixed economy and command economy

• Advantages of a free market economy:

  • Productive efficiency
  • Higher economic growth
  • Political freedom
  • High motivation
  • Consumer sovereignty
  • Automatic system
• Disadvantages of a free market economy:

  • High levels of inequality
  • Problem of externalities
  • Could potentially cause monopolies
  • Resources could be wasted on unproductive expenses
  • Lack of merit goods and little control of demerit goods
• Advantages of a command economy:

  • Better well-being of the country
  • Less wastage of resources
  • Long-term planning
  • Provides a minimum standard of living
  • Standardised products means they are produced cost effectively
• Disadvantages of a command economy:

  • Can lead to a waste of resources
  • Slower decision-making
  • Consumers lose their freedom
  • Less motivation and efficiency
  • Increase in bribery and corruption
• What is a free market economy?

  In a free market economy, individuals are free to make their own choices and own the factors of production without government interference. Resources are allocated through the price mechanism.
• What is a command economy?

  A command economy is an economic system in which the state has full control over the production and distribution of goods and services. Resource allocation is carried out by the government, rather than the price mechanism.
• What is a mixed economy?

  An economic system that combines elements of both capitalism and socialism. Both the free market mechanism and the government planning process allocate a significant amount of the total resources in the country .