The Economic system is a way in which a country allocates the production, distribution, and consumption of goods. Several economic systems are in existence; these are; traditional, command, market and missed economies. The traditional economic system relies on traditions to determine what is done for a living. Industries, shelter, and clothing are similar to those in previous generations. It is therefore not used as there are developments taking place in the world of production and distribution, and the needs and demands are changing in the command system, the government controls all economic activities. In this system, the market plays little to no role in the decisions regarding production. Thus, it is less flexible and reacts slowly to fluctuations in demand and supply of consumers (Haddad 11). The market economy is a system where resources are owned and controlled by the collective actions of individuals and organizations through the allocation of a voluntary market governed by the demand and supply of goods, also known as a free market. A mixed system combines both market economy and the command system into one. It is a thriving economy as there are balance and control in the private sector, and public areas leading to healthy competition and provision of quality products as each sector strives to make profits and meet the demands of the general public.
The primary goal of a well-functioning economy is to meet the demand and supply all the needs of the citizens of a state efficiently. The goals of a well-functioning economy are freedom, efficiency, equality, stability, security and growth of the state. A market economy meets the demands of its citizens by the freedom in the supply of goods depending on the requirements of the people. It is highly efficient as all the demands of a nation are met thus ensuring here is no between the demand and the supply. Through the government's interventions and regulation, there is an equal distribution of wealth and social amenities to all areas of a state thus enabling a growing economy from all sectors and the growth in the country’s Gross Domestic Production. By the provision of particular series by the government, for instance, defense, the stability of a country's economy is guaranteed as there will be an increase in investments as the security is assured. Where there is safety, there is guaranteed an increase in production and influx in investment as well as innovations.
In the mixed system, the government determines how much business activity there will be in the private and public sectors. It is, therefore, a balance between the government provision and the free market provision. In a country where the government plays the significant economic role, the social provision will be higher, high taxation and the distribution of wealth and income will be equal. Whereas, where the private sector plays the economic role, social provision is lower, the taxes are lower, thus the distribution of wealth and income less equal. In the mixed economy, the market is free of government ownership except in a few key areas that command economy controls, for instance in America these programs are education and transport. The government’s role is to protect the operators and consumers, issue money, thwart monopolies and in the repair and maintenance of state properties. The mixed system has several advantages, to include; goods and services are supplied to the areas where their demand is high, consumers and producers can make changes to meet their aims, it promotes competition, innovation, and greater efficiency. However, it has its demerits, these are; unequal distribution of income, it is also not very competent in the provision of certain services for example health, defense, and education.
Macroeconomic goals of government interventions are to maintain employment, ensure stability in prices, gaining a high level of economic growth as well as maintenance of balance in exports and imports (Dixon & O’Mahoney 45). It is also able to measure the-the national income by the flow of revenue and expenditure, thus determining the gross domestic production retest government also imposes policies. Fiscal policy is an example of a system through which the government attempts to change its deficit or surplus to meet its economic goals. It involves decisions regarding borrowing, taxes and expenditure. It is also able to monitor the cost of living thus determining inflation and deflation and adjusting prices accordingly. Through the export and import regulation, there is the encouragement of local production of goods at a lower price as opposed to getting goods from other countries at a higher cost which also boosts employment thus ensuring an increase in taxes and the general development of a country.
There are various merits to the mixed economy; these are; equal distribution of control, thus the equal distribution of wealth. More efficiency in the private sectors as compared to the public sector monitored by the government (Dixon & O’Mahony 110). The availability of more job investments and the higher chance of implementation of sound policies by the government. However, it has its cons to include the challenge of striking a balance between wealth and market freedom, excessive intervention by the government also affects the private sector due to the short ruling terms of states, again government might too far in its regulation affecting companies.
Work Cited
Dixon, Tim, and John O'Mahony. The Market Economy: Year 11 Preliminary Economics Course. Sydney: Leading Edge Education, 2009. Print.
Haddad, Louis. Towards a Well-Functioning Economy: The Evolution of Economic Systems and Decision-making. Northampton, MA: Edward Elgar Pub., 2002. Print.
