Economy is made up by resourceful allocation of all goods and services in a community which will further help a nation in economic development. Economic structure comprises of different patterns of consumption, decision making processes, agencies, institutions, entities to help all communities. Basically economy is divided into three basic types which are – Market Economy, Mixed Economy and Planned Economy. Traditionally all the comparisons and analysis of economic systems were made on the basis of Market economy and Planned Economy and major distinctions were between capitalism and socialism but now most of the countries are based on mixed economy. Now we are going to discuss about the three major types of economies in brief to understand it a little better.
Market economy is a system where all the decisions regarding investment, production and distribution in the market are taken by looking at the market forces of demand and supply. Price of a commodity relies on the demand and supply of that commodity, these two forces need to meet at an equilibrium price for any particular service and goods in order to form the perfect price for that commodity. There is a government intervention in this free market system whenever government feels to avoid certain behaviors in the market by applying price ceilings in the market for products or by using fiscal policy. Allocation and distribution of all the resources are done by analysing the forces of demand and supply in a Market Economy.
Totally different from market economy planned Economy basically is an economy where most or all the production, distribution and allocation of goods and services are decided by the government. There is no such decision making power in the hands of business owners and private citizens like they have in the market economy. Planned economy has a less chance of inequality and low level of unemployment. The government here decide the prices of goods and services making it equal for the people of society. However you can see that these economies has a low efficiency of work.
Mixed economy is an economy where both private enterprises and government coexist and make all the decisions in accordance with each other. Mixed economy carries mostly all the advantages of a market economy. Both capitalism and socialism exist with each other in a mixed economy, making it more popular and more convenient for society needs. Government here provides the public goods and services to the society. Mixed economy promotes a healthy competition which eventually ends up being more profitable for the society. Most of the countries nowadays are moving to become a mixed economy in order to bring more economic development for the citizens of their nation.
These three main economies are actively present in the world and every country has its own way of thinking to adopt a particular economy style for their economic development. Most of the countries now think that mixed economy is the best way to promote economic development whereas there are some nations which prefer planned and market economy to be the best for their economic development.
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