e compared to alternative market economies. The command economy works on the principle that instead of having to rely on the decisions of millions of individuals, the government actively manages the economy in the interests of society. It directs the nation’s resources in accordance with specific national goals. In practice, maintaining one specific style has proved virtually impossible due to the governments’ political and social agenda. Therefore a mixed market economy, a combination of the two has evolved. Mixed Market EconomyAs stated, a market economy where there is some government intervention although the degree of intervention is important in ascertaining the effectiveness of the price mechanism. The main components of the mixed economy are summarised as: A free enterprise sector – decisions taken through the workings of the market Government regulation – through budgets etc Public ownership of some industries Welfare services.Difficulties facing the price mechanismGovernment InterventionAn increase in the power of the state has become a central fact of modern society. Important decisions about production and distribution have been made through the political process rather than through the market place. The intervention of the Government can take a number of forms. Fixing prices above or below the free market equilibrium Taxing the production or sale of carious goods Subsidising the production or sale of various goods Taking over production. The government could nationalise various industries or run them directly from government department (e.g. defence and health). Various laws have been passed to regulate the behaviour of firms. For example, public transport or armaments production. Licences or official permission have to be obtained to produce certain goods, a regulatory body supervises the activities of various firms and preve...
