Market Economy Definition: Decisions on producing and consuming goods and services are based on what people want to buy and/or sell (a.k.a. supply & demand). Pro: People are free to make their own choices about what services or products to purchase. Con: Market outcomes may not be equitable. Short Supply of Gas + Increase in Gas Demand = Price increase Ample supply of gas + Little to no demand = Price decrease
Command Economy Definition: The government controls what is produced and how it is produced. The government owns the resources and decides who gets the products. Pros: Command economies can prevent abuse of large companies and can prevent mass unemployment. Cons: Limits the rights and freedoms of citizens. If there were a shortage of gas in countries with a command economy, the government could ban citizens from buying gas in order to save it for government vehicles.
Mixed Economy Definition: A mixed economy means that part of the economy is left to the free market, and part of it is run by the government. Pros: A mixed economy can create greater equality and provide a ‘safety net’ to prevent people living in absolute poverty. Cons: Can be difficult to know how much governments should intervene. In reality most economies are mixed, with varying degrees of state intervention.
Mixed Economy Example The United States of America
Traditional Economy Definition: An economy in which people make their own products and is based on customs, traditions, and economic roles that are typically passed down from one generation to the next. Pros: A sense of community within the economy and income equality. Cons: Lack of modernization, lack of personal gain, and lack of freedom. Tribal communities trading goods with one another is a good example of this.