two mian types of economic systems?

Question

outline the two mian types of economic systems - capitalist/market economy and the planned economy

Answer 1

A market economy (also called a free market economy, free enterprise economy) is an economic system in which the production and distribution of goods and services takes place through the mechanism of free markets guided by a free price system rather than by the state in a planned economy.[1] [2] In a market economy businesses and consumers decide what they will produce and purchase, as opposed to a planned economy where the government decides what is to be produced and in what quantities.[3]

A market economy has no central coordinator guiding its operation, yet theoretically self-organization emerges amidst the complex interplay of supply and demand and price regarding a multitude of goods and services. Supporters of a market economy generally hold that individuals pursuing their self-interest through trade has the incidental effect of bringing about a spontaneous order that is effective in supplying the greatest abundance of goods for society and in the most efficient manner. Adam Smith says that the individual whom:

"intends only his own gain is led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of it. By pursuing his own interest [an individual] frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the [common] good." (Wealth of Nations)

The economists' model of a free market is one in which there is no governmental intervention or other coercion. The theoretical model of a large-scale free market economy does not occur legally, however the underground economy may be seen as an actualized free market economy.

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A planned economy (also known as command economy and centrally-planned economy) is an economic system in which the state or government controls the factors of production and makes all decisions about their use and about the distribution of income.[1] In such as economy, the planners decide what should be produced and direct enterprises to produce those goods.[2] Planned economies are in contrast to unplanned economies, i.e. a market economy, where production, distribution, and pricing decisions are made by the private owners of the factors of production based upon their own interests rather than upon furthering some overarching macroeconomic plan.

A planned economy may either consist of state owned enterprises, private enterprises who are directed by the state, or a combination of both. Though "planned economy" and "command economy" are often used as synonyms, some make the distinction that under a command economy, the means of production of production are publicly owned. That is, an planned economy is "an economic system in which the government controls and regulates production, distribution, prices, etc." [1] but a command economy, while also having this type of regulation, necessarily has substantial public ownership of industry. [2] Therefore, command economies are planned economies, but not necesarrily the reverse (example: Nazi Germany's private ownership yet use of the Four-Year_Plan could strew them as a planned economy, but not necesarrily a command economy, while the Soviet Union with public ownership would be a command economy).

Important planned economies that existed in the past include the Economy of the Soviet Union, which was for a time the world's second-largest economy. Beginning in the 1980s and 1990s, many governments presiding over planned economies began deregulating and moving toward market based economies by allowing the private sector to make the pricing, production, and distribution decisions. Although most economies today are market economies or mixed economies, planned economies exist in some countries such as Cuba and North Korea.