Table 1. Comparison of rationing systems.

Centrally planned economy Free market economy

 All economic decisions are made by  Resources are privately owned by

Summary the government. people and firms.
 There is no private property; factors of  All economic decisions are made by
production are state owned. consumers and producers through the
price mechanism.

What to  The government decides what goods to  Consumers drive the market with their
produce? produce, which are the ones they think demand.
the society needs.  High prices are the signal telling firms
what people want.
 Firms are profit driven and will produce
those goods which will allow them to
make the maximum profit possible.

How to  Government planners decide how all  The profit motive of firms and the
produce? resources are to be used and where changing preferences of consumers
people should work. determine the allocation of resources,
that is, how factors of production are
used.
 Firms will aim to produce goods as
efficiently as possible to remain
competitive in the market.

For whom  The government decides how to  The ones who can pay for the goods
to distribute the produced goods and are the ones who consume them.
produce? services.  Those with the highest income have
 Everybody works directly or indirectly more 'votes' in the market.
for the government so they are all paid
similar salaries and have the same
opportunity to buy goods and services.

In reality, all economies are mixed economies, as they all have a level of government
intervention combined with the free market. The only difference is the degree of the mix
from country to country. In a country like China, there are high levels of central planning
and government intervention in markets; while in countries like the UK, USA and Chile,
government intervention is less, but still essential to avoid problems that a completely
free market system might produce.