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Friday, February 25, 2011

Market and Mixed Economy Definitions with Advantage and Disadvantage

A market economy is defined as an economic system in which the decisions regarding the whole economy of the country i.e. the production and distribution of goods and services and the pricing of goods and services occur with the help of free market mechanism (Mesa-Lago et al., 2003). On the other hand, mixed economy is defined as an economic system in which both the elements of capitalist economy and the socialist economy exist.

In market economy, the consumers and the businesses are free to take decisions of their own i.e. the decisions related to what to purchase and what to produce and also, there is less intervention of the government in the activities of the citizens (Ollman, 1999). In Mixed economy, the production, distribution and other types of economic activities are performed by both the private ownership and the state ownership i.e. the private sector and the government sector (Mixed Economy, 2008).

Advantage of Market Economy:

In the market economy, there is increased efficiency due to the presence of competition between different firms. The chances of innovation are higher in this economy because of the selling of new products in the market by the firms with the help of some inexpensive production methods. In this economy, the people are hard working due to which there are great opportunities to attract the foreign investors and earning higher profits (Baumol & Blinder, 2009). In this economy, the people acquire some technical and social knowledge and skills more quickly to perform effectively and there are a large number of goods available to the customers who have a high purchasing power.

Disadvantage of Market Economy:

In this economy, unemployment, social and economic inequalities grow very fast. There are chances of distorted investment priorities because of the concentration of wealth only towards earning profits rather than the basic needs of the people. In this economy, corruption and all kinds of economic crimes increase in all the sectors of society rapidly (Ollman, 2008). The market economy leads to the exploitation of workers and periodic economic crises. It also worsens the ecological degradation and reduces the social benefits and welfare of the people.

Advantage of Mixed Economy:

In a country, to increase the national production, mixed economy is considered to be very useful. In this economy, in order to bring out a huge amount of production, both the public sector and the private sector work hard. Mixed economy helps in solving the issues or problems created by the free enterprises and excessive public control (Mesa-Lago et al., 2003). Mixed economy allows political freedom as well as freedom of the enterprise ownership. It also provides different ways of earning profit as well as social welfare. In this economy, all the natural resources are utilized (Baumol & Blinder, 2009).

Disadvantage of Mixed Economy:

In achieving the optimal or the most favorable use of natural resources, mixed economy is not helpful. The chances of progress in the mixed economy are very less. This economy also suffers from continuous backwardness. In the mixed economy, there is a lack of coordination between the public sector and the private sector. The chances of economic fluctuations in the mixed economy are very high (Mixed Economy, 2008).

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References:

Baumol, W.J. & Blinder, A.S. (2009). Economics: Principles and Policy (11th Edition). Cengage Learning.

Mesa-Lago, C. et al. (2003). Market, Socialist, and Mixed Economies: Comparative Policy and Performance--Chile, Cuba, and Costa Rica. Market, Socialist, and Mixed Economies. Johns Hopkins University Press.

Mixed Economy (2008). Retrieved February 22, 2008, from http://www.economywatch.com/world_economy/world-economic-indicators/mixed-economy.html

Monday, February 14, 2011

Strategic Management and What is Strategy

Field of strategy has several definitions and a common theme amongst these definitions is that strategy of a company is creating a unique ‘position’ of the company in the competitive landscape in which company operates by making trade-offs and creating a sustainable competitive advantage. There are different views on how a company can form its strategy. Two main perspectives of the field of strategic management are market based view and resource based view.

Market based view or school of strategy focuses its attention on the market i.e. environment and forces existing outside the company and recommends company to choose a strategic position according to the forces existing in the company micro and macro environment. Basically, this school of strategy argues that understanding industry and environment forces are important and essential to create a strategic position for the company.

While resource based view concentrates on analyzing thoroughly what are capabilities and resources of the company and according to that creating a competitive posting of the company. According to this school of thought companies shall deeply analysis its resources and try to convert these resources and capabilities into core competencies.

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