Chapter 2.1, Problem 3R

Solution

To Discuss: Advantages and Disadvantages of Traditional, Command, Market and Mixed Economy.

Introduction:

Market Economy- Market economy is a free economy in which central problems (what, how and for whom to produce) are solved by the market forces of supply and demand.

Mixed Economy- Mixed economy shares the characteristics features of a free economy as well as a planned economy. The economy problems (what, how and for whom to produce) are not entirely left to the free play of market forces. Profit maximization goal is allowed to be pursued, but not at the cost of social justice.

Traditional Economy- Traditional economy is based on traditional approach, as it tends to focus mainly on agriculture, fishing, etc. In traditional economy there is a use of barter system, which has no concept of currency or money.

Command Economy- In a command economy there is only one centralized power, which is mostly the government and government makes all the economy decision regarding in what quantities goods and services should be produced.

Types of System	Advantages	Disadvantages
Traditional Economy	It focuses on the skill of individual and relies on the barter system	High level of competition and fewer choices
Command Economy	Makes easy to mobilize resources and reduces inequality within society	Number of options available to consumers and tends to limit personal freedom
Market Economy	Allows free interplay of supply and demand	Resources of society are not optimized to the fullest
Mixed Economy	It improves production efficiency	They have high tax rates