Ever wondered how diverse would be the subject of economics? With so many different kinds of economies running in the world simultaneously, economics is a subject which is never too easy. However, whatever type of economy it is, all the economies of the world are divided to three categories. These are free market economy, command (Planned) economy or mixed economy. In the paragraphs that follow, you will read about these economies, how they are composed, why they are called so, and their pros and cons.
A free market economy is a type of economy where nothing is held by the government. Everything, property, services, products and business are the sole properties of private individuals. All the factors of production, land, labor, capital and enterprise are controlled privately. In such economies, businesses are usually very competitive and try their best to manage all the resources efficiently to produce budget-friendly and useful commodities, without any waste being produced. The major advantages of a free market economy are that the customers have a wide variety of products. Customers can always choose from the wide variety of whatever to use. There is no government restriction or extra taxes on purchases on any of the products. Secondly, the workers are motivated to work as hard as possible because they can keep their full income. This is because in a free economy a government is almost non-existent, no taxes will be charged on incomes. This will in turn increase the aggregate production of the country and increase the standard of living of the people. Such an economy is very competitive, as mentioned formerly. So, all the businesses strive to provide the best services and keep their price the lowest. This is perhaps the greatest benefit.
Other type of economy is a command or planned economy. Such type of economies can be called as communist governments because all the properties, businesses, land and resources of production are under the control of government. The local people have no rights to own anything under their own name. This type of economy also has some advantages and disadvantages. Starting off from the pros, in such type of economies, there is very low level of unemployment. Even if the business is going in loss, the government will not make employees redundant. So there will be more economic growth and less crime rate. While simultaneously, everybody would have a balanced standard of living. For example, nobody will be so poor that they cannot afford the basic necessities. Necessary commodities would be made available for everybody. However, it has some disadvantages too. Since no control or possession of private property is allowed, the people would have less incentive and motivation to work. Secondly, there will be no production of luxury goods and the people would have a very little variety of items to choose from. Lastly, people and businesses may know that there is a government backing behind them. They will not care even if the business went in to loss. Thereby the working incentive is gone and efficiency decreases.
The third and last type of economy is a mixed economy. A mixed economy is formed partly of governmental properties and authorities and partly by the private individuals. Today, most of the world economies can be classified in this category.
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