Click here To Download Total 1 Page(s) ECONOMIC SYSTEMS FEATURES MARKET ECONOMY COMMAND ECONOMY MIXED ECONOMY Ownership of property : Private ownership Government ownership Private + Public (govt.) ownership Motive or objective: Profit maximization Collective welfare social Private Sector Profit maximsation Public Sector Collective Welfare Allocative mechanism: Price mechanism ( demand and supply) Rationing mechanism (central planning & quota’s ) Private Sector Price mechanism Public sector Rationing mechanism Freedom of choice: (In Production & Consumption) Freedom of choice No freedom of choice Private Sector yes Public sector no Competition: Yes No Private Sector yes Public sector no Role of government: (In allocation of resources i.e.) Minimum role of govt. in economic affairs. Only limited to maintain law & order in the country. All economic & non-economic affairs are in the hands of govt. Govt. limit its role to the provision of necessary goods & services & regulate private sector for social welfare.. Variety of goods & services: Yes No Private Sector yes Public sector no Quality of goods & services: High quality Poor quality usually Private sector High quality Public sector Poor quality usually Response to changes in demand: Consumer sovereignty Quick response to changes in consumers preferences. slow or no response. Private Sector Quick response Public sector Slow response Efficiency: Producing most desirables goods (allocative efficiency) with least cost methods(productive efficiency) *efficient allocation of resources usually because of existence of profit motive *Sometime inefficient .e.g. private Monopolies. Inefficient allocation of resources because of absence of profit motive. Inefficiency of private sector is minimized by govt. policies. Shortages & surpluses: (Shortage = Demand > Supply) (Surplus = > Supply > Demand) Price mechanism clears markets and there are no shortages & surpluses. Central planning is unable to guess exact quantities demanded , Shortages & surpluses are present. Private sector No shortages & surpluses Public sector Shortages & surpluses are present. Merit goods: e.g. Healthcare, education etc Underproduction & under consumption. Socially optimum *private sector underprovision *Missing markets of merit goods will be supplied by govt. provision. Public goods: .e.g. street light national defense non-marketable and therefore missing provides public goods from central finance. Public sector provides public goods. Demerit goods: e.g. alcohol, drugs, cigarettes etc. overproduction & over consumption. Less or no demerit goods govt. discourage consumption & production will be by high taxation and legal actions. Distribution of income & Wealth: unequal distribution Even distribution Progressive taxation and welfare payments to poor will reduce the disparity between rich & poor. Useless duplication of goods & services: Yes No may be in private sector but not in public sector. Negative externalities: (e.g. Noise , pollution , Congestion, etc) More than socially optimum level Socially optimum Govt. will regulate the emissions of negative externalities by taxes and legal actions Necessities & luxury goods: Less necessities & more luxury goods more necessities & less luxury goods Public sector will provide necessities to even those who can’t pay. Private Monopolies: develop and exploit consumers by setting high prices No private monopolies are there in command economy. Govt. regulates private monopolies and protects consumer’s from exploitation. Existence in real world: No pure market economy No pure command economy All economies are mixed but proportion of private & public sector vary from country to country. Other terms: Free economy, Capitalism, free market economy, laissez faire. Communism, socialism, planned economy, centrally planned economy.