Economy
Candlefocus EditorMarket-based economies, which are also known as free-market economies, are based on the principles of supply and demand, which interact to determine the price and quantity of goods produced and consumed in the society. The modern market-based economies rely on self-regulation, where production and distribution of goods and services is a result of the consumers’ demand.
Examples of a market-based economy include the US, Japan and most other countries in the western world. In a market-based economy, the government plays a minimal role, as the primary focus is on free trade and competition. Taxation, price controls, and government subsidies, although present to some degree, are kept to a minimum.
In contrast to a market-based economy, a command-based economy is one that is mainly regulated by the government. In a command-based economy, the government decides which goods should be produced, the quantities of goods, and the prices at which those goods are sold. Countries such as the former Soviet Union and North Korea have followed command-based economic systems.
In reality, however, few economies are purely market-based or command-based. In most countries today, the government still plays an important role in regulation and taxation, while also providing services and incentives to ensure the efficient and fair distribution of goods and services. The economy can also vary widely between societies, as economies are shaped by political, social, cultural, environmental and other factors. To maximize the benefit of any given economy, having an understanding of all the systems that interact to create it is essential.