Market vs. Command Economy Essay

What is the main purpose of the economic system? The main purpose of the economic system is method used to produce and distribute goods and service. The three economic questions are: “What goods should be produced? ” “How should these goods and services be produced” And “Who consumes these goods and services? ” The characteristic of a market economics is that self-interest is the motivating force in the free market, self regulating market. The interaction of buyers and sellers motivated by self-interest and regulated by competition, all happen without a central plan.

In a market economy, economic decisions are made by individuals and are based on exchange or trade. However, characteristics of a command economic is that it’s a central planned economy with all (most) economic and political power rest in the hand of the government. Command economic usually involve 2 type of government – socialism and communism. In a command economy, the central government makes all decision about the production and consumption of goods and services. First and Foremost, market exits because no one of us can make everything we need.

A market is an arrangement that allows buyers and sellers to exchange goods and services. Specialization is the concentration of the productive efforts of individuals or households and firms on a limited number of activities. Self-interest is the motivating force in the free market, Self Regulating Market. Producers in a free market struggle for the dollars of consumers. This is known as competition, and is the regulating force of the free market. For example, McDonalds will do anything for our money!

They attract all buyers-young, old, fit, not fit, etc… The interaction of buyers and sellers, motivated by self-interest and regulated by competition, all happens without a central plan. This phenomenon is called “the invisible hand of the marketplace. ” In economics a ‘”Factor market'” refers to markets where services of the factors of production (not the actual factors of production) are bought and sold such as the labor markets, the capital market, the market for raw materials, and the market for management or entrepreneurial resources.

Firms buy productive resources in return for making factor payments at factor prices. Product market is a mechanism that allows people to easily buy and sell products. The interaction between product and factor markets involves the principle of derived demand. Derived demand refers to the demand for productive resources, which is derived from the demand for final goods and services or output. Firms obtain the inputs or factors of production in the factors markets. The goods are sold in the products markets. In most respects these markets are the same.

Price is determined by the interaction of supply and demand, firm’s attempt to maximize profits, factors can influence and change the equilibrium price and quantities bought and sold and the laws of supply and demand hold. Consumers (households), in pursuit of their self-interest, have the incentive to look for lower prices. An incentive is the hope of reward or fear of punishment that encourages a person to behave in a certain way. Free market offer a wider variety of goods and services, and consumers in essence decide what gets produced which is called consumer sovereignty.

Additionally, Centrally Planned Economies usually involve 2 types of government: Socialism which is a social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout a society, and Communism which is a political system characterized by a centrally planned economy with all (most) economic and political power resting in the hands of the government. Unlike socialists, however, communists believed that socialist society can only come about after a violent revolution.

While socialist economies can still allow for democracy, communist governments are authoritarian. On state-run farms, the state provided farmers with all equipment, seed, and fertilizer. Farmers worker for daily wages set by economic planners. Collectives were large farms leased from the state to group of peasant farmers. Soviet factories also were state-owned. Planned favored the defense industry, the space program, and heavy industry. Heavy industry is often defined as a type of business that typically carries a high capital cost (capital-intensive), high barriers to entry and low transportability.

The term “heavy” refers to the fact that the items produced by “heavy industry” used to be products such as iron, coal, oil, ships, etc. Moreover, Market and command economy have many differences but also a few similarities. In both economics, they both have producers and consumers, goods, and services and also have money and labor. Nevertheless, market and command economics are in direct contrast with each other. Market economics is more free from government control. Consumers decide what is produced, the producers determine the best means of production and the actual price decides who gets the product/what’s being produced.

There’s a much higher level of productivity in this system, change is quick, it’s very high tech, and it’s also very efficient. On the other hand, in a command economics, the central government makes all decisions about the production and consumption of goods and services. Factors of production are government owned, there’s limited technology very little growth, and low levels of productivity. The better choice for economy would be the market economics because it’s more efficient room for growth and productivity.

In Summation, a market economy has the advantage over the traditional economy in that it adjusts to consumers’ demands over time. Market exits because no one of us can make everything we need, so it’s an arrangement that allows buyers and sellers to exchange goods and services. In command systems, they are answered by government. They’re 3 economic questions answers in a market and command economy. In market economies, they’re answer by individuals. In both economics, they both have producers and consumers, goods, and services and also have money and labor.

The characteristics of market systems is that self-interest is the motivating force in the free market and self regulating ,while in a command systems , all economic and political power rest in the hand of the government. The better choice for economy in my opinion would be the market economics because it’s very high tech , more efficient , has room for growth and productivity in comparison to a command economics which there is limited technology very little growth, and low levels of productivity.