Free Market vs. Planned Market

Attribute	Free Market	Planned Market
Ownership of resources	Privately owned	State-owned
Price determination	Determined by supply and demand	Set by government
Competition	High competition	Little to no competition
Efficiency	Efficient allocation of resources	Potential for inefficiency
Government intervention	Minimal government intervention	High government intervention

Introduction

Free market and planned market are two different economic systems that have been implemented in various countries around the world. Each system has its own set of attributes that distinguish it from the other. In this article, we will compare the attributes of free market and planned market to understand their differences and similarities.

Definition

A free market economy is a system where the prices for goods and services are determined by the open market and consumers. In a free market, individuals and businesses are free to make their own economic decisions without government intervention. On the other hand, a planned market economy is a system where the government controls the production and distribution of goods and services. The government decides what goods and services will be produced, how they will be produced, and for whom they will be produced.

Ownership of Resources

In a free market economy, resources are owned by individuals and private businesses. This means that individuals have the right to own property, start businesses, and make economic decisions based on their own self-interest. On the other hand, in a planned market economy, resources are owned and controlled by the government. The government decides how resources will be allocated and used for the benefit of society as a whole.

Price Mechanism

In a free market economy, prices are determined by the forces of supply and demand. When demand for a product is high and supply is low, prices will increase. Conversely, when demand is low and supply is high, prices will decrease. This price mechanism helps to allocate resources efficiently and signals to producers what goods and services are in demand. In a planned market economy, prices are set by the government. The government determines the prices of goods and services based on factors such as production costs, labor costs, and desired profit margins.

Competition

In a free market economy, competition is encouraged as businesses compete with each other to attract customers and increase market share. This competition leads to innovation, lower prices, and higher quality goods and services. Consumers benefit from a wide range of choices and competitive prices. In a planned market economy, competition is limited as the government controls the production and distribution of goods and services. This lack of competition can lead to inefficiency, lack of innovation, and lower quality goods and services.

Efficiency

In a free market economy, resources are allocated efficiently as prices adjust to reflect changes in supply and demand. Businesses are motivated to produce goods and services that are in demand and to do so at the lowest possible cost. This efficiency leads to economic growth and higher standards of living. In a planned market economy, resources may not be allocated efficiently as the government may make decisions based on political considerations rather than economic factors. This can lead to waste, shortages, and inefficiency.

Flexibility

A free market economy is flexible and can adapt quickly to changes in the economy. Prices adjust to reflect changes in supply and demand, and businesses can enter or exit markets based on changing conditions. This flexibility allows the economy to respond to new opportunities and challenges. In contrast, a planned market economy is less flexible as the government controls the production and distribution of goods and services. Changes in the economy may be slow to implement, leading to inefficiencies and missed opportunities.

Conclusion

In conclusion, free market and planned market economies have distinct attributes that shape how resources are allocated, prices are determined, and competition is encouraged. While a free market economy promotes individual freedom, competition, and efficiency, a planned market economy focuses on government control, stability, and social welfare. Each system has its own advantages and disadvantages, and the choice between the two depends on the values and priorities of a society.