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Explanation:
Economic systems are organized way in which a state or nation allocates its resources and apportions goods and services in the national community. An economic system is slackly defined as country’s plan for its services, goods produced, and the exact way in which its economic plan is carried out. There are three types of economic systems exist, they are command economy, market economy, and mixed economy. Command economy is also sometimes called planned economy. The expectations of this type of economy is that all major decisions that related to the construction or production, distribution, commodity and service prices are all made by the government. However, in market economy, national and state governments play a…show more content…
Businesses can decide which goods to produce and in what quantity and consumers can decide what they want to purchase and at what price. The role of the state is limited to ensure right precision in the prices charged by the sellers. Prices also have the function to allocate and distribute a country’s resources. Market leads to complete effectiveness bringing about the best possible distribution of a country’s resources in a perfect world. This would only happen in a state of equilibrium and there is a unique price for every commodity. But in a realistic world which is imperfect by nature, prices are never at equilibrium and very unstable depending upon the vagaries of the market forces. This generally harms people living below the poverty line. It is impossible for them to pay high prices in cases of demand shortage. Thus, the free market model is not a viable option in developing countries which has a large number of poor. Besides, producers are aim to minimize profit and maximize rent of production. Examples of countries that are using this economy system are Hong Kong, USA, and UK. Many developing countries like India and China are moving towards totally free-market economy. The command economy is government directed. The market forces have very little say in such an economy. There is no private property. On the other hand, a command economy aims at using all available resources for developing either
