1.3 Is There an Alternative to the
Market Economy? LO 5
We can distinguish three pure types of economies: traditional,
command, and free-market. In practice, all economies are mixed
economies.
By the late 1980s, most countries with centrally planned economies
had failed to produce minimally acceptable living standards for their
citizens. These countries are now moving toward greater market
determination and less state command in their economies.
Governments play an important role in modern mixed economies.
They create and enforce important background institutions such as
private property and freedom of contract. They intervene to correct
market failures. They also redistribute income in the interests of
equity.