Advantages: + Consumers and producers have economic freedom to make their own decisions. «A greater variety of goods and services will be produced. © Competition among firms can result in lower prices and better quality. «Resources are allocated to satisfy consumer wants, tastes and preferences. + Relative market prices reflect relative scarcity. Disadvantages: + Prices are unstable since they respond to changes in demand and supply and there is a tendency for inflation. + Since wages are set by demand and supply for workers, there is uneven distribution of income. + ‘Too many demerit goods like cigarettes and alcohol will be produced. * Insufficient merit goods like education, health and family planning will be produced. + Public goods like streetlights, traffic lights and mosquito spraying will NOT be produced. + Lack of government controls can result in exploitation of consumers from false advertising. + Lack of government controls can result in exploitation of workers. + Advertising by firms creates artificial wants. + Itencourages the pursuit of self-interest and profit. 3. Planned/Controlled/Command Economies (Communism) Characteristics: © The Gov't/State owns and controls resources. * Centralized decision making by the Gov't © Resources are allocated to production based on a Cost-Benefit Analysis. = Firms receive contracts from the Gov't to produce goods and services. Advantages: + Little or no inflation since Gov't sets all prices. + Even distribution of income. + Since the social interest is the primary objective, demerit goods and services will not be produced. + Merit goods will be supplied in sufficient quantities. © There will be production of public goods. + Full employment of workers. 12