5 The Market Economy

Cities have a lot of street or local markets where people sell and buy food and goods, especially in autumn, after owners of private gardens have harvested their crops, like apples, cherries, potatoes or carrots. It’s a free market and it’s not controlled by a government.

The street market has features of the free market economy. Customers come to the market because they have a demand for things. Sellers supply customers with what they need and try to get the highest price for it. Supply and demand control what is on the market and how much it sells for.

The role of the company in the free market is to supply what people want. However, companies need an incentive. The incentive is profit.

Companies have to compete with each other for a share of the market. Competition is good for consumers because it helps to control prices and quality. Technology exists in a free market because producers need ways to reduce their costs. Technology is the use of tools and machines to do jobs in a better way. This helps companies produce more goods in less time and with less effort. The result: more profit.

Though many economies in the world are considered free or market economies, the governments have control over them. All governments set limits in order to control the economy. For this reason, a true market economy is only theoretical. Nevertheless, many of the features of the market economy exist in most societies today.

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6 The Planned Economy

The planned economy is the direct opposite of the market economy. In the market economy, the forces of supply and demand decide everything: what is produced, how much is produced, the methods of production and the price. In the planned economy, all of this is decided by the government.

Like every economy the planned economy has its strengths and problems. The free market supplies the things that people want. However what people want and what they need are not always the same. Fast food is always in demand but it is not good for our health. In a planned economy, the government can decide to stop fast food restaurants.

A second problem with free markets is that producers always want the highest price. Often the poor can’t afford things. In a planned economy, the government sets prices. They make sure that everyone can afford basic commodities. This is one way that planned economies try to share things equally. Another is to control how much people are paid.

In a planned economy workers’ wages depend on the service they provide to society. If people can live without their service, they are paid less.

Before 1900, there were few examples of planned economies. During the 20th century, however, the planned economy became the standard for socialist governments like the USSR and China.

No economic system is perfect. The planned economy has many drawbacks. One of them is problems with supply. It is difficult for governments of planned economies to know exactly how much to produce to meet demand. In a market economy, when the price of a commodity rises, this indicates a rise in demand. Companies then supply more to the market. This warning system doesn’t work in a planned economy because price is controlled by the government. The result is shortages

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