In this assignment I have been asked to examine the arguments for and against the UK been a mixed economy of both private and public organisations. An economy consists of the economic system of a country, which is the process it uses to determine what is produced and how it will be distributed. There are three different ways to determine on what is produced and how it will be distributed, by either a market economy, mixed economy or a command economy. A command economy is an economy that is largely controlled by the government and is made up of public organisations.
The central government will make all the decisions regarding what good and services are produced and how they will be distributed. The government does this through a planning process so a command economy could also be known as a planned economy. Through a planning process the government will decide who to allocate resources to and will they direct producers what to produce meaning that consumers will have limited choice as there is little variety of goods and services.
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There are 3 main agents in a command economy the government, the consumers and the workers.
In a command economy the government will ensure a more equal distribution of income and wealth, as everyone will be paid equal dependant of their job. The government will also provide merit goods like education, health care and pensions; this is through schools and hospitals. A merit good is a product that society values and judges that everyone should have regardless of whether an individual wants them. This type of economy will provide all citizens with a minimum standard of living.
Command economies should be also be good for the environment because the government is about the greater good so should take into consideration the environment when deciding how many goods to produce but it doesn’t always work out that as they become more concerned about increasing productivity. A command economy can lead to productive inefficiency due to a lack of competition and no profit motive as everyone is working for the common good. Countries still using command economies are Cuba and North Korea.
A market economy is opposite to a command economy meaning that it is a type of economic system in which the trading and exchange of goods and services takes place in a free market. A market economy is made up of private organisations who will determine the price of goods and services, what to produce and in what quantity meaning consumers will get freedom of choice in what they want to purchase. Free markers are also very competitive so competitors will allocate their resources more efficiently as the decision about what will be produce are determined by the people that actually consume the goods.
Competitors will always be trying to produce new and better things to get ahead of their competition so will improve Innovation within a free market economy unlike in a command economy when there is no incentive for the planner to be innovative. There is little intervention from the state in a free market economy. In reality a pure market economy does not exist as they would not work as there has to be certain regulations in place. A free market economy achieves higher economic growth rates than a command economy, so the economy can grow bigger and at a faster rate.
The most successful economy in the world the USA is an example of this as one of the freest economies in the world. “Economic growth is defined as the increasing capital to satisfy the wants of the members of society Economic growth is enabled by increases in productivity, which lowers the inputs (labour, capital, material, energy, etc. ) for a given amount of output. Lowered costs increase demand for goods and services.
Economic growth is also the result population growth and of the introduction of new products and services. ” (Source:http://en. wikipedia. rg/wiki/Economic_growth) Economic Growth is measured by GDP which refers to the total market value of all goods and services produced in a county in any given year. GDP figures are released on a quarterly year basis. Example of how GDP is worked out: GDP= C+I+G+(X-M) GDP= Consumer Spending + Investment in capital goods + Government Spending + (exports – imports) In a market economy there are some public goods that cannot be provided privately because of non-diminishability and non-excludability. An example of this is street lights where this has to be provided privately.
There are also problems with merits goods like health care and education which are under provided. People are advised to take out health insurance but people tend not to as they can’t afford it or spend money on other things leaving people without health care for when they become ill. The biggest disadvantage of a free market economy is the uneven spreading of wealth. This means that there will be a proportion of people in poverty and a number of millionaires. This means that a child could be born into poor family and with a poor education they may not be able to live a high quality life.
With a market there is the opportunity for successful people to make millions but a command economy is a fairer economy and will make sure everyone is given equal opportunities. A market will economy will also create more pollution than a command economy, which makes it bad for the environment as there is no limit on the amount of production and as businesses chose how to product goods. Governments can try to force firms into ways of producing goods by increasing taxes on things like petrol but a government with a limited role would not want to do this.
A Mixed economy is an economic system in which the government and the private sector direct the economy. Most countries in the world will have a mixed economy. In a mixed economy the government will run such things as the postal service, rail lines, libraries, schools and hospitals. The governments pay for these through income taxes. With the existence of a government, they will make sure that there is a basic standard of living for citizens unlike in a free market economy when there is no safety net for people.
Examples of this are that the government will provide free health service for all citizens, minimum wage laws and pension schemes. As a pure planned economy or market economy do not fully exist in the world, a mixed economy is an equal balance between these economies and would not be classed as mixed economy if a country was at one end of a scale. In a mixed economy free enterprise and private ownership still exists like in a free market economy but will be subject to government regulations, giving the consumers and producers the motivation as it will be for self-interest.
The government are motivated by the good of the community. The ownership of property (land and capital) will be both owned by the private individual and private organisations as well as the government owning a proportion. In a mixed economy production is still run by private organisations. State and find figures to support the argument that England is a mixed economy, for example. Government spending in the UK accounted to 50% of spending.