Market Systems

In this type of system, the economic decisions are made without any central direction. Instead, they result from innumerable, independent decisions made by individual producers and consumers; such a system is known as a free-market economy or, more simply, a market economy. In such an economy, decisions relating to the basic economic issues are decentralized. They are nonetheless coordinated. The main coordinating device is the set of market-determined prices - that is why free-market systems are often called price systems.

Mixed Systems

Economies that are fully traditional, or fully centrally controlled, or wholly free-market are pure types which are useful for studying basic principles. When we look in detail at any real economy, however, we discover that its economic behaviour is the result of some mixture of central control and market

determination, with a certain amount of traditional behaviour as well. In practice, every economy is a mixed economy in the sense that it combines significant elements of all three systems- traditional, command, and market- in determining economic behaviour. Furthermore, within any economy, the degree of the mix varies from sector to sector. For example, in some planned economies the command principle was used more often to determine behaviour in heavy goods industries, such as steel, than in agriculture. Farmers were often given substantial freedom to produce and sell what they wished in response to varying market prices. When we speak of a particular economy as being a centrally planned economy, we mean only that the degree of the mix is weighted heavily toward the

command principle. When we speak of an economy as being a market economy, we mean only that the degree of the mix is weighted heavily toward decentralized decision making in response to market signals. It is important to realize that such distinctions are always matters of degree, and that almost every conceivable mix can be found across the spectrum of the world’s economies. Although no country offers an example of either system working alone, some economies, such as Canada, France, and Singapore, rely much more heavily on market decision than others, such as the economies of China, North Korea, and Cuba. Yet even in the United States, the command principle has some

sway. Minimum wages, rules and regulations for environmental protection, quotas for some agricultural outputs, and restrictions on the import of items such as textiles, cheap shoes, and sugar are the obvious examples.