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Only government decides what to produce
No consumer sovereignty

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Increased production of Merit + Public Goods
Less inequality of wealth - narrower gap between rich and poor
Prices are more stable
Externalities are being taken care of

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Government only intervenes sometimes

Under mixed economy, Economy is function by firms and households. When market failure occurs, govt will intervene

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Externalities
No production of Public goods (Free rider problem)
Too many demerit goods being produced
Too little merit goods being produced
Monoply

Greater gap between rich and poor widens

Prices may be unstable

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Advantages and disadvantages of planned economy 

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Advantages and disadvantages of planned economy 

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Efficient allocation of resources
Competition between firms => increased innovation and invention leading to greater profits for firms
With competition, firms are motivated to reduce cost of production therefore consumers enjoy cheaper goods

Consumers are able to enjoy more goods and services

Consumer sovereignty (consumer is the king)

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Only the government intervenes
Aim: To improve well being

All production by the firms are being instructed by the govt.

The Govt will inform firms what to produce, how to produce and for whom to produce

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Y1/IB 7) Price Mechanism - The 4 Functions

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Contraction in Demand, Extension in Supply

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Prices decrease -> signals to producers to cut back on production -> producers will employ less resources and also divert their resources from unprofitable production to this said profitable production -> Consumers being rational will decrease their demand. therefore qty supply increase

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Contraction in Supply, Extension in Demand

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Prices increase -> signals to producers to expand production to meet the high demand -> producers will employ more resources to increase production -> new producers may also enter the market (want to divert their resources from unprofitable production to this said profitable production)-> Consumers being rational will increase their demand. therefore qty demand increase

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Advantages and disadvantages of free market economy

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Advantages and disadvantages of free market economy

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In a free market, producers and consumers uses the price mechanism. Price mechanism sends signal to producers on what to produce.

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No government intervention
Where producers (aim: to max profit) and consumers (aim: max satisfaction)
This economy functions by the firms and consumers according to price signals through the price mechanism.