Economic Systems Essay

1122 Words Mar 27th, 2009 5 Pages
Introduction

Economic systems are organized way in which a state or nation allocates its resources and apportions goods and services in the national community. An economic system is slackly defined as country’s plan for its services, goods produced, and the exact way in which its economic plan is carried out. There are three types of economic systems exist, they are command economy, market economy, and mixed economy. Command economy is also sometimes called planned economy. The expectations of this type of economy is that all major decisions that related to the construction or production, distribution, commodity and service prices are all made by the government. However, in market economy, national and state governments play a
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There is always happen surplus and shortage by using this command economy. Planners cannot detect consumer preferences, shortages, and surpluses with sufficient accuracy and therefore cannot efficiently co-ordinate production. Example, in the history of the Soviet Union, shortages were so common that one could wait hours in a queue to buy bread. These shortages were due in part to the central planners deciding, for example, the commands were not given to supply the shoe factory with the right amount of leather, or because the central planners had not given the shoe factories the incentive to produce the required quantity of shoes. In the other hand, surpluses point out a waste of labour and materials that could have been applied to more urgent needs of society. A market economy prevents long-term surpluses because the act of supply and demand causes the price to sink when supply begins exceeding demand, indicating to producers to stop production or face losses. Since in a command economy prices are not allowed to set freely, there is no accurate mechanism to determine what is being produced in unnecessarily large amounts and what is being produced in insufficient amounts. Examples for the countries that are with this economy system are Vietnam and Northern Korea. The mixed economy refers to such an economic system wherein two the economic

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