Comparative Analysis of Free Market Economy and Mixed Economy Essay

Comparative Analysis of Free Market Economy and Mixed Economy - Essay Example The essay â€Å"Comparative Analysis of Free Market Economy and Mixed Economy† highlights main advantages and limitations of the two prevailing economic systems in a modern world. An economic system comprises the configuration of institutions and organisations that specify property relations within a given society or that channel and influence the distribution of goods and services. In a traditional economic system, there is no control and everyone can produce goods for themselves. The countries which follow this economic system have low GDP and they have high government regulation of business. On the other hand, a planned economic system is the one where all economic activities are planned by the government of the day. The government has the overall say in how businesses should operate. A free market economy is defined as â€Å"a market without any regulation. In other cases it means markets in which prices are free to reflect supply and demand. Sometimes it means competitive markets free of monopoly or concentration. In a free market economy system, individuals are encouraged to produce and make gains for themselves and the economic system is driven by profit motives. It can also be seen that price mechanism determines the allocation of resources. For instance, the law of demand and supply comes into play. A free market economic system has its own limitations A mixed economy is regulated and its performance is mainly determined by the economic policies promulgated and implemented by the government. ... It can also be seen that price mechanism determines the allocation of resources. For instance, the law of demand and supply comes into play. Basically, in a free market economy, the quantity of products offered in the market is mainly determined by the amount of price the consumers are willing to pay. Kotler and Armstrong (2004) state that the price people are willing to pay for a certain commodity correlates with the quantity of goods supplied. In economics, the law of demand and supply states that the price of the product shapes the quantity of goods that can be produced at a particular period. This law goes on to state that the higher the price, the higher the goods the producers are willing to supply (Benassy, 1988). High price means high supply of products and this entails that high profits are likely to be generated. On the other hand, a mixed economy is a combination of a free market and planned economies. A mixed economy is regulated and its performance is mainly determined b y the economic policies promulgated and implemented by the government. To a certain extent, it can be seen that a free market economy is effective compared to a mixed economy. According to Pryor (2006), countries with a business-oriented or free market economic system have a significantly higher rate of economic growth. The main reason for this is that they can generate more revenue from free trade taking place. Unlike in a regulated economy, a free market economic system is liberal and the flow of money is not restricted. In a free market economy, the consumers have a variety of choice of goods offered since the manufacturers of these commodities are mainly concerned with satisfying the needs of the customers. As long as the consumers are willing to pay the price,