Market Mechanism

[!def] A market economy is an monetary system where the forces of supply and demand direct the production of goods and services.

Free market economy

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  • Output of every good/service determined by the forces of demand and supply
  • decides upon a level of output which determines the level of resources used
  • No government intervention in any market

Who: Private sector firms and consumers
How: Price mechanism

Planning Mechanism

[!def] An economy in which all of the resources are owned by the state & the government controls the distribution of goods/service

Pure Command Economy

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  • The government directly decides upon the level of output for every good/service
  • Directs the resources available towards those productive processes
  • Complete intervention by government in every market

Who: government

Mixed economy

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A blend of the free market and planned economy as individuals, firms & the government own factors of production & distribute goods/services

Private Sector

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privately owned and operated by individuals, groups, or entities like sole proprietors, partnerships, or LLCs.

Public Sector

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government-owned and managed to serve public interests

Price Mechanism

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