How the market system allocates scarce resources through the price mechanism, the rationing/signalling/incentive functions of price, and the mixed economy.
The economic system
Every economy must decide what, how and for whom to produce. The three broad systems are:
Market economy — resources are allocated by the price mechanism (private firms and consumers, no government direction).
Planned (command) economy — the government owns resources and decides production centrally.
Mixed economy — a blend of the two: a private sector (market forces) and a public sector (government). Almost all real economies are mixed.
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