The free market is an economic system based on supply and demand with little or no government control.

Mixed economic systems are not laissez-faire systems, because the government is involved in planning the use of some resources and can exert control over businesses in the private sector. Governments may seek to redistribute wealth by taxing the private sector, and using funds from taxes to promote social objectives.

The United States is said to have a mixed economy because privately owned businesses and government both play important roles. In addition, Americans generally believe that an economy characterized by private ownership is likely to operate more efficiently than one with substantial government ownership.

A command economy is an economic system where the government has control over the production and pricing of goods and services.

A centrally planned economy, also known as a command economy, is an economic system in which a central authority, such as a government, makes economic decisions regarding the manufacturing and the distribution of products.

Free Market Economy It contributes to economic growth and transparency. It ensures competitive markets. Supply and demand create competition, which helps ensure that the best goods or services are provided to consumers at a lower price.

The opposite of a market economy — i.e, a “non-market” or “planned” economy — is one that is heavily regulated or controlled by the government, most notably in socialist or communist countries.

Governments may also intervene in markets to promote general economic fairness. Maximizing social welfare is one of the most common and best understood reasons for government intervention. Examples of this include breaking up monopolies and regulating negative externalities like pollution.

Government intervention causes more problems than it solves. For example, state support of industries may encourage the survival of inefficient firms. If governments bailout banks, it may create moral hazard where in the future banks have less incentive to avoid bankruptcy because they expect a government bailout.

Due to the structure of markets, it may be impossible for them to be perfect. Reasons for market failure include: positive and negative externalities, environmental concerns, lack of public goods, underprovision of merit goods, overprovision of demerit goods, and abuse of monopoly power.

Among some of the most common market imperfections are monopolies, oligopolies, large countries in trade, externalities, public goods, nonclearing markets, imperfect information, and government tax and subsidy policies. Externality effects can arise from production or consumption activities.

Summary. There are four basic types of market structures: perfect competition, imperfect competition, oligopoly, and monopoly.

An imperfect market refers to any economic market that does not meet the rigorous standards of the hypothetical perfectly—or purely—competitive market. A perfect market is characterized by perfect competition, market equilibrium, and an unlimited number of buyers and sellers.

According to Buckley and Casson (1976), the MNE as a mechanism will seek to by pass these imperfections by internalising operations. The firm will exploit a market opportunity through internal operations rather than distance transactions such as licensing 7 Page 8 or franchising.

Characteristics:

• Large number of Sellers and Buyers: There are large numbers of sellers in the market.
• Product Differentiation: Another important characteristic is product differentiation.
• Selling Costs:
• Free Entry and exit of Firms:
• Price-makers:
• Blend of Competition and Monopoly:

Imperfectly competitive markets exist whenever there is more than one seller in a market and at least one seller has some degree of control over price. We discussed two general types of imperfectly competitive markets: monopolistic competition and oligopoly.

Examples of monopolistic competition

• The restaurant business.
• Hotels and pubs.
• General specialist retailing.
• Consumer services, such as hairdressing.

In perfect competition, any profit-maximizing producer faces a market price equal to its marginal cost (P = MC). This implies that a factor’s price equals the factor’s marginal revenue product. It allows for derivation of the supply curve on which the neoclassical approach is based.