Question

Review the characteristics of the three major types of economies: Free markets, Command markets and Mixed markets.

How do the laws of supply and demand vary within each system?

Answer 1

Three types of market are characterized by control by the government, ownership of private property rights, exchange rate system adopted and government interventions. Here, free market represents a market where government role is negligible, dominated by market forces and encouragement to private property rights. Further, flexible exchange rate system is followed. In contrast to it, in command market, government controls everything as state ownership with strong ownership. In mixed market, government intervenes, but private ownership is also given. Central banks also play role to affect exchange Rate.

In the light of it, law of demand and supply is fully applied in free markets and it is the demand that creates supply. But in command market, these laws are fully controlled by the government. It is the government that will supply and people have to consume it. so, degree of inelasticity is very high in supply and demand has to follow it. In mixed market, law of demand and supply is applied in its form, but government intervenes either with quota to control supply or bring price control in the form of floor and ceiling prices. It affects demand and supply.