FEATURES
ECONOMIC SYSTEMS
MARKET
ECONOMY
COMMAND
ECONOMY
MIXED ECONOMY
Ownership of property :
Private ownership
Government ownership
Private + Public (govt.) ownership
Motive or objective:
Profit maximization
Collective welfare social
Allocative mechanism:
Price mechanism ( demand
and supply)
Freedom of choice
Rationing mechanism
(central planning & quota’s )
No freedom of choice
Yes
No
Private Sector Profit maximsation
Public Sector Collective Welfare
Private Sector Price mechanism
Public sector Rationing mechanism
Private Sector yes
Public sector
no
Private Sector yes
Public sector
no
Govt. limit its role to the provision of
necessary goods & services &
regulate private sector for social
welfare..
Private Sector yes
Public sector
no
Private sector
High quality
Public sector Poor quality usually
Private Sector Quick response
Public sector
Slow response
Freedom of choice:
(In Production & Consumption)
Competition:
Role of government:
(In allocation of resources i.e.)
Variety of goods & services:
Quality of goods & services:
Response to changes in
demand: Consumer sovereignty
Efficiency:
Producing most desirables goods
(allocative efficiency) with least
cost methods(productive
efficiency)
Shortages & surpluses:
(Shortage = Demand > Supply)
(Surplus = > Supply > Demand)
Merit goods:
e.g. Healthcare, education etc
Public goods:
.e.g. street light national defense
Demerit goods:
e.g. alcohol, drugs, cigarettes
etc.
Distribution of income &
Wealth:
Useless duplication of goods
& services:
Negative externalities:
(e.g. Noise , pollution ,
Congestion, etc)
Necessities & luxury goods:
Private Monopolies:
Existence in real world:
Other terms:
Minimum role of govt. in
economic affairs. Only limited
to maintain law & order in
the country.
All economic & noneconomic affairs are in the
hands of govt.
Yes
No
High quality
Quick response to changes
in consumers preferences.
*efficient allocation of
resources usually because of
existence of profit motive
*Sometime inefficient .e.g.
private Monopolies.
Price mechanism clears
markets and there are no
shortages & surpluses.
Poor quality usually
slow or no response.
Inefficient allocation of
resources because of
absence of profit motive.
Inefficiency of private sector is
minimized by govt. policies.
Central planning is unable to
guess exact quantities
demanded , Shortages &
surpluses are present.
Private sector No shortages &
surpluses
Public sector Shortages &
surpluses are present.
*private sector underprovision
*Missing markets of merit goods will
be supplied by govt. provision.
Underproduction & under
consumption.
non-marketable and
therefore missing
Socially optimum
overproduction & over
consumption.
Less or no demerit goods
unequal distribution
Even distribution
Yes
provides public goods from
central finance.
No
More than socially optimum
level
Less necessities & more
luxury goods
Socially optimum
develop and exploit
consumers by setting high
prices
No private monopolies are
there in command economy.
No pure market economy
No pure command economy
Free economy, Capitalism,
free market economy, laissez
faire.
Communism, socialism,
planned economy, centrally
planned economy.
more necessities & less
luxury goods
Public sector provides public goods.
govt. discourage consumption &
production will be by high taxation
and legal actions.
Progressive taxation and welfare
payments to poor will reduce the
disparity between rich & poor.
may be in private sector but not in
public sector.
Govt. will regulate the emissions of
negative externalities by taxes and
legal actions
Public sector will provide
necessities to even those who can’t
pay.
Govt. regulates private monopolies
and protects consumer’s from
exploitation.
All economies are mixed but
proportion of private & public sector
vary from country to country.