External environment illustration External environment theory

Planned, market and mixed economies

Market, planned and mixed economies

Three main sets of decisions need to be made by the economic system - what to produce, how to produce, and how to share out the product of the economy. A market economy is one in which answers to the three questions above are determined by buyers and sellers interacting with each other without government interference. By contrast, a planned economy is one in which a central planning agency such as the government makes the major economic decisions. A mixed economy includes elements of both the market and the planned economies.

Those (and there are few of these left today) that favour the centrally planned economy argue that the government (central planners) are best placed to meet the needs of all the people of a particular society. Those in favour of the free market argue that central planning wastes resources and that the market makes sure that consumers get what they want produced, while competitive firms supply it at a profit. The reality is that most societies operate some form of mixed economy.

In the UK we have a mixed economy. Most decisions are made by the market - e.g. when you buy goods in supermarket you vote with your money for the goods that you want to buy. However, some decisions are made by the government e.g. those relating to road building, school and hospital construction, the supply of medicines in hospitals etc.

In the UK, the emphasis is on letting the market make most decisions because of its high level of efficiency in responding to customer preferences. However, some decisions must be made by the government on behalf of society e.g. decisions about military spending, and public education.

 

 

 

 

Supporting Documents

These downloads will help to put external-environment theory into context using real world examples from real businesses.

Leading a revolution in banking
Intelligent finance logo

Find out how Intelligent finance applied external-environment theory to thrive in the financial services industry by downloading our premium case study.

Innovation in infant nutrition
Cow & Gate logo

Discover how Cow & Gate applied external-environment theory to prosper in the food & drink industry by downloading our premium case study.

Live, breathe and wear passion
Diesel logo

Find out how Diesel used external-environment theory to thrive in the fashion industry by downloading our premium case study.

Entering a new market with a new product
Experian logo

Find out how Experian applied external-environment theory to succeed in the financial services industry by downloading our premium case study.

The use of social media in promotion
National Trust logo

Discover how National Trust used external-environment theory to succeed in the non-profit industry by downloading our premium case study.

Newsletter

Subscribe to our newsletter for current business news including lesson plans and activity ideas.

Share this website