There are three types of economic systems. The Planned or Command economy, the Free-Market economy and the Mixed economy.
Planned or command economy:
Is the economy where all economic decisions are taken by the central authorities. It’s usually associated with a socialist or communist economic system, where land and capital are collectively owned.
The government tries to eliminate all private property and distribute its good equally. If done correctly no one is in poverty and no one is wealthier than another. Social services are also emphasized in this type of economy. The government will provide equal health care, education opportunities, and make sure all people are fed. A third advantage to this type of economy is that it is capable of rapid change for major problems. The government owns the companies, so if production needs, need to be shifted into a different area, the government is capable of doing it rather quickly. A final major advantage of command economy is that it is very stable. Command economy will never have sudden depressions.
Free – Market economy:
It’s an economy where all economic decisions are taken by individual households and firms and with no government intervention. It is usually associated with a pure capitalist system where land and capital are privately owned.
The biggest advantage of free market economy is that it gives the people the power of choice. They have greater freedom to choose how they want to spend their income. Another major advantage is that it makes best use of individual entrepreneurial abilities, which it also encourages. Major problem is that to be most effective it needs some ideal environmental conditions like full, free and instantaneous availability of all relevant information to all buyers and sellers. It also requires complete freedom to manufacturers from one industry to another. Perfect conditions like these are possible only in theory. Lack of these ideal condition makes free market mechanism...