Different economies solve the central problems differently:
Following are the details:
Market Economy : The market economy is an independent economy; it means that the producers are free to make decisions, on what basis do they make their decisions on ‘how and for whom?’ Yes, it is based on the value system. Producers choose to produce goods in which the prices are relatively high because they are interested in maximizing their revenue, they would like to adopt the production technology or would like to use those inputs, whose the price is relatively low. Because they are interested in reducing their costs. They will produce goods, and services for those buyers who are ready to provide them the maximum possible value, because they are interested in maximizing their profits.
Centrally Planned Economy : Decision relating to a centrally planned economy, is made by some central authority appointed by the government of the country, on ‘what, how and for whom’? and not on the basis of price mechanism.
All decisions are taken into account to maximize social welfare, and contrary to the market economy, maximization of profit is not considered. Those goods and services will be produced which the central authority (or government) finds most useful for the society. That technology of production will be adopted which is socially most useful. For example, in case of collective unemployment, labour-intensive technology will be given preference (rather than capital intensive technology) so that unemployment is low. Goods will be produced preferably for those residents who suffer from hunger or starvation, even when it involves incurring loss in production it.
Mixed Economy : Mixed economy combines the good qualities and avoids the flaws of market economy and centrally organized economies. Decision on the basis of price mechanism as well as on ‘what, how and for whom’ ? the goods are to be produced is based on social considerations. Such a situation can be described as the condition of ‘regulated price system’. In some areas of production, the producers are free to make their own decisions, while in other areas, decisions are taken entirely on the basis of social considerations. For example, In India, growers are free to produce cloth or steel to maximize their profits. But post and telegraph services are the monopoly of the government. The government provides these services at a nominal rate so that the poorest can afford them.
