Planned, market and mixed economies

Three main sets of decisions need to be made by the economic system - what to produce, how to produce, and how to share out the product of the economy. A planned economy is one in which a central planning agency such as the government determines the 3 economic decisions outlined above. A market economy is one in which these decisions are determined by buyers and sellers interacting with each other without government interference. A mixed economy includes elements of both the planned and the market economies.Those (and there are few of these left today) that favour the centrally planned economy argue that the government (central planners) is best placed to meet the needs of all the people of a particular society. Those in favour of the free market argue that central planning wastes resources and that the market makes sure that consumers get what they want producing, while producers supply it at a profit. The reality is that most societies operate some form of mixed economy.

The market economy

In this country we have a mixed economy. Most decisions are made by the market - e.g. when you buy goods in supermarket you vote with your money for the goods that you want to buy. However, some decisions are made by the government e.g. those relating to road building, school and hospital construction, the supply of medicines in hospitals etc.

In the UK the emphasis is on letting the market make most decisions because of its high level of efficiency in responding to customer preferences. However, some decisions must be made by the government on behalf of society e.g. decisions about military spending, and public education.

The market economy refers to the system whereby what is produced and how is determined by buyers and sellers engaging in free exchanges for the sale and purchase of goods.