- Societies organize through different economic systems.
- These systems allocate scarce resources.
Market Economy
- Individuals and private firms make major decisions.
- Decisions are about production and consumption.
- A system of prices, markets, profits, and losses guides choices.
- Firms produce for highest profits (what).
- They use least costly techniques (how).
- Consumption depends on spending wages and property income (for whom).
- Example: United States.
Command Economy
- The government makes all important decisions.
- Decisions are about production and distribution.
- Government owns most means of production (land, capital).
- It directs enterprises and tells workers their jobs.
- It decides how output is divided among people.
- Example: Soviet Union.
Mixed Economy
- All modern societies are mixed economies.
- They have elements of both market and command systems.
- Most decisions are made in the marketplace.
- Government plays an important role in overseeing the market.
- Governments regulate economic life and produce public goods.
- Example: Most developed and developing economies today.
| Feature | Market Economy | Command Economy | Mixed Economy |
|---|---|---|---|
| Decision Maker | Individuals and private firms | Government | Market and Government |
| Ownership of Production | Private | Mostly government | Both private and public |
| Resource Allocation | Prices, profits, incentives | Government commands | Combination of market and government |
| Example | United States | Soviet Union (historically) | Most modern societies |