What are the benefits and drawbacks of market economies and mixed economies?

Question

Which do you think is better?

Answer 1

Planned Economies
A pure planned economy is one where some person or group tells everyone what to do with their goods; people all work together, and the goods and services that are produced are planned, and distributed, by the government. These are sometimes known as Command Economies, because everyone is told what to do. The motive of such an economy is to make sure that everything that people need is produced, and that everyone gets what they need. This type of economy was first conceived as a Communist idea, where the workers would be able to control the system. The main drawback of such a system is that the person or group that plans the economy must know, in advance, exactly what should be produced; otherwise, people will not have enough of some goods.

Planned economies have no unemployment, and no essential needs normally go unfulfilled; the government knows how much food will be needed, and how much medicine, etc. so they should be able to provide them. Realistically, however, these systems tend to suffer from large inefficiencies, and are not as sucessful as other types of economic systems.

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Market Economies
A pure market economy is one in which no-one is told what to do, or how to do it. Everyone is left on their own to decide what to produce, who to work for, and how to get the things they need. This type of economy, though it seems chaotic, allows for people to change what they do if they see that they could be successful at them.

Market economies can have problems, for instance, if there is a good that is an absolute necessity for some people, but no-one in the market is interested in making it. For instance, in the United States, in 2000, there was a shortage of tetanus vaccine; it was expensive to make, and one of the two companies that had made it previously went bankrupt. Since it takes 11 months to add production, there was a significant shortage until the other company was able to increase production. In a planned economy, this should not happen, because the government would not stop making the vaccine unless it was not needed.

Market economies also have unemployment, and some people will not be able to make enough money to provide for all of their needs. On the other hand, the market tends to be more efficient (for reasons that will be discussed later) and people have more opportunity to do the jobs they want, and to profit by them.

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Mixed Economies
Most modern economies do not use either of these systems, and instead have some features of both. Usually they have a free market, but the government owns some businesses, and provides some goods and services to the citizens. Mixed economies attempt to take the benefits of both systems; they may subsidize industries, rather than actually own them. This means they provide benefits, such as tax breaks or other incentives, so that the industry will remain profitable. Similarly, Mixed goverments may have government owned hospitals and medical services, so that all citizens can use them, but allow other parts of the economy to run on their own, so that inefficiency is minimized, and people can have the jobs they want.

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Markets
In any economy that is not completely planned, there are markets for some, or all, goods and services. These markets are where everything we study in microeconomics occur. In a pure free market economy, all goods and services may be bought and sold, whereas in some mixed economies, certain goods may not have normal markets because of government intervention. In either case, however, the way a good is bought and sold depends on its scarcity, who has it, and what they want to do with it. In the next chapter, we will start to examine how exactly markets work.