Economic Systems

• Centrally Planned Economy:

  An economy where the government makes all decisions regarding the production of goods and services. Ex) Iran

  • Firms providing goods and services are operated by the government
  • Citizens of the country aren't involved with businesses apart from providing labour
  • Tax rates are higher due to a higher level of public services
  • Wealth is equally distributed between the citizens of the country

  + All essential products are provided for by the government

  - Businesses have no incentive to be efficient, and have no competition, leading to higher prices and lower standards
• Free Market Economy:

  An economy where the citizens are free to setup any businesses in any area or sector they please, without any government interference. Ex) the United States

  + Consumers have a wider range of goods and services to buy

  + Prices are lower, due to competition between businesses

  + Taxes are lower, as the government isn't providing goods and services

  - Social welfare payments for the unemployed and sick are low

  - A lack of regulation from government can lead to hazardous goods

  - The wealth is unevenly distributed, resulting in a large gap between the rich and poor
• Mixed Economy:

  A mix of the free market and centrally planed economies. Production of goods and services are shared between the government and businesses.

  • Citizens are free to set up businesses for production most of the times, as long as they are within the law
  • The government can regulate business by issuing licences

  + Wide range of goods and services

  + Public amenities (parks) are provided by the government

  - Limited income for public services can lead to poor quality of public services. Ex) long medical wait lists

  - Government regulation reduces competition