Main stories
Energy market review Energy market - to be investigated by new competition watchdog..more
Budget logo Budget analysis - latest news
Mark Carney Bank of England - downgrades unemployment threshold

UK growth - GDP up 0.8% in the third quarter of 2013

UK unemployment - down to 7.1% as jobs market improves. More..

The global economy - IMF revises growth forecasts..More
Royal Mail - privatisation comes a step closer with announcement of IPO. More...
   
UK to launch Islamic Bond ..more
Mortgage approvals - highest since Jan 2009...More
Bank of England launches 'forward guidance' policy. Read the full story.
The UK's top 40 Universities for Economics.
Public spending - £11.5bn cuts announced
UK growth - UK avoids triple-dip recession
Benefit cap  - kicks in at £500 per week
UK Budget 2013 - analysis and comment
Student Guide to university Clearing
Quantitative easing - put on hold
Poverty - recession and relative poverty
Welfare reform - the end of universal benefits
Underemployment - over 3 million
CPI inflation - at 2.7%
   
Energy prices - set to rise
Competition policy - new regulator planned
Greek bailout - Euro problems
Top international universities for Economics
Top UK universities for Economics
OECD - latest forecasts for the OECD countries..More
Updates Get the latest updates on the UK economy, including GDP, inflation...More...
  Study guides Latest resources for students from Economics Online.  More...
How to answer data response questions. More...
Multiple choice tests Improve knowledge and understanding of Economics. More...
Market structures revision presentations
Economics tuition - from specialist tutors. Find out more..or REGISTER
City of London The financial crisis reveals a fundamental weakness .. More...
Recommended texts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic systems

There are two basic solutions to the economic problem as described by Paul Samuelson, namely free markets and central panning.

Free market economies

Markets enable mutually beneficial exchange between producers and consumers, and systems that rely on markets to solve the economic problem are called market economies. In a free market economy, resources are allocated through the interaction of free and self-directed market forces. This means that what to produce is determined consumers, how to produce is determined by producers, and who gets the products depends upon the purchasing power of consumers. Market economies work by allowing the direct interaction of consumers and producers who are pursuing their own self-interest. The pursuit of self-interest is at the heart of free market economics.

Market economies

Command economies

The second solution to the economic problem is the allocation of scarce resources by government, or an agency appointed by the government. This method is referred to as central planning, and economies that exclusively use central planning are called command economies. In other words governments direct or command resources to be used in particular ways. For example, governments can force citizens to pay taxes and decide how many roads or hospitals are built.

Command economies have certain advantages over free market economies, especially in terms of the coordination of scarce resources at times of crisis, such as a war or following a natural disaster. Free markets also fail at times to allocate resources efficiently, so remedies often involve the allocation of resources by government to compensate for these failures.

Command economies

Command economies have certain advantages over free market economies, especially in terms of the coordination of scarce resources at times of crisis, such as a war or natural disaster. Free markets also fail at times to allocate resources efficiently, so remedies often involve the allocation of resources by government to compensate for these failures.

Mixed economies

There is a third type of economy involving a combination of market forces and central planning, called mixed economies.

Mixed economies may have a distinct private sector, where resources are allocated primarily by market forces, such as the grocery sector of the UK economy. Mixed economies may also have a distinct public sector, where resources are allocated mainly by government, such as defence, police, and fire services.  In many sectors, resources are allocated by a combination of markets and panning, such as healthcare and, which have both public and private provision.

Mixed economies

In reality, all economies are mixed, though there are wide variations in the amount of mix and the balance between public and private sectors. For example, in Cuba the government allocates the vast majority of resources, while in Europe most economies have an even mix between markets and planning.

Economic systems can be evaluated in terms of how efficient they are in achieving economic objectives.