Market vs. Command Economy Essay

1069 Words Dec 21st, 2012 5 Pages
Market vs. Command Economy What is the main purpose of the economic system? The main purpose of the economic system is method used to produce and distribute goods and service. The three economic questions are: “What goods should be produced?” “How should these goods and services be produced” And “Who consumes these goods and services?” The characteristic of a market economics is that self-interest is the motivating force in the free market, self regulating market. The interaction of buyers and sellers motivated by self-interest and regulated by competition, all happen without a central plan. In a market economy, economic decisions are made by individuals and are based on exchange or trade. However, characteristics of a command economic …show more content…
Firms buy productive resources in return for making factor payments at factor prices. Product market is a mechanism that allows people to easily buy and sell products. The interaction between product and factor markets involves the principle of derived demand. Derived demand refers to the demand for productive resources, which is derived from the demand for final goods and services or output. Firms obtain the inputs or factors of production in the factors markets. The goods are sold in the products markets. In most respects these markets are the same. Price is determined by the interaction of supply and demand, firm's attempt to maximize profits, factors can influence and change the equilibrium price and quantities bought and sold and the laws of supply and demand hold. Consumers (households), in pursuit of their self-interest, have the incentive to look for lower prices. An incentive is the hope of reward or fear of punishment that encourages a person to behave in a certain way. Free market offer a wider variety of goods and services, and consumers in essence decide what gets produced which is called consumer sovereignty. Additionally, Centrally Planned Economies usually involve 2 types of government: Socialism which is a social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout a
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