Economic Systems

Which of the Economic Systems is best suited for a country ?

In this essay, I will analyse which of the economic systems is the most beneficial to a country’s economy and to its population.

In a Free Market Economy, the Government does not interfere in how a business in how a business may run from day to day. However, the Government has to provide a mechanism for deciding the three questions of what to produce, how to produce and for whom to produce. Moreover, it has the obligation to maintain law and order with a judiciary system and must protect every individual’s property rights.

This is an interesting systems since it encourages freedom of innovation and increases the GDP of a country due to higher consumption rates.

One of the key aspects of a Free Market Economy is the factor of competition between firms. Competition in the marketplace provides the best possible product to the consumer at the best price. When a new product is launched, it usually starts out at a high price, eventually though, the price will drop down due to other companies trying to copy it and similar products emerging. Therefore this system benefits the consumers as they can buy more for a lower price.

However, they pay another price, which is the poor working conditions and unethical decisions that entrepreneurs seek as their goal is to increase their profit. On the other hand, this would not happen in a Command Economy. Workers would be taken care of, working environment conditions would be significantly better due to rules and regulations imposed by the Government and trade unions that support the working class.

A Mixed Economy would offer the best of those two worlds. For example, in the United States, where there is a high level of competitiveness among fast food chains. These fast food chains try to decrease their production costs but at the same time maintaining appropriate working conditions for their employees.

Secondly, a Free Market Economy encourages hard working employees due to the threat of losing their job because the product or service is not selling. In addition to this, efficiency is boosted and consequently, a higher GDP is achieved. This has an affect on all 4 stake holders. Consumers get a better product, firms have a greater marginal profit, workers receive a higher wage due to their hard work and Government will receive more taxes to build roads and other infrastructures.

Meanwhile, in a Command Economy, the production of goods and services will decrease due to the morale of employees going down. The cause of this is that individual self-gain is no longer a driving force. This will not benefit the Government because they will receive a lower amount in taxes, may have to spend more on benefits because people might not want to work anymore.