THE ALLOCATION

OF RESOURCES
IN MARKET AND
MIXED
ECONOMIES.
 Economic Systems
• All societies/countries face problem of scarcity of resources
and unlimited wants.
• Basic questions societies have to answer:
• What is to be produced i.e. resource allocation.
• How it will be produced– i.e. method/technique.
• Who will get what is produced i.e. distribution.
• An economic system determines the method a society uses to
answer the questions above i.e. the allocation of resources to
satisfy competing wants of society.
• The three economic systems are market, planned and mixed
economies.
 The Market Economy.
• Price mechanism, or forces of
demand and supply (invisible hand)
allocate resources among producers
and consumers.
• Government intervention is minimal.
• Private firms (and consumers)
determine what to produce, how to
produce them and distribute them.
 Merits of The Market System.
• Quick response to
consumers’ wants.
• Freedom of choice.
• Competition and efficiency.
• No need for officials
• Incentive for hard work:
Disadvantages of the Market System
(Market Failure)
• Public goods such as police force, street
lighting, sea defence are not adequately
provided.
• Merit goods are under - produced and under-
consumed e.g. education, health care.
• Unemployment may occur if it is not
profitable to employ some people.
• The harmful effects of production on society
may be ignored.
• Unequal distribution of wealth may occur.
 The Planned Economy
• Government allocates resources i.e. determines
the goods and services which should be
produced, how they should be produced and
distributed.
• The state (public sector) owns the main factors of
production e.g. land and capital.
• Prices of goods and services are fixed; they are
not free to change according to changes in
demand and supply.
• Government can intervene in markets to correct
market failures.
Advantages of Planned Economies
• Production of public and merit
goods.
• Equitable distribution of wealth.
• Possible to check environmental
pollution.
• Redistribution of profit
 Disadvantages of Planned
Economies.

• Shortage of goods
• Production of poor
quality goods
• Bureaucracy and
inefficiency.
• Lack of choice
 The Mixed Economy
• It consists of a private sector and a public
sector i.e. a mixture of market and planned
economies.
• Resources e.g. land and capital are owned by
both the private sector and the public sector.
• The market mechanism and government
allocate resources. Private firms produce some
goods and services and government provides
public and merit goods.
Advantages of Mixed Economies.
• Provision of public and merit goods.
• Creation of jobs for the unemployed.
• Possible to control the production of
harmful goods.
• Possible to check environmental
pollution.
• Fair distribution of income.
 Disadvantages of Mixed Economies.
• High taxes on profits and incomes
reduce incentive to work.
• Regulations impose significant costs
on firms.
• Gross inefficiency- poor quality goods
and services.
• Politically motivated expenditures