Question

Decide whether each of the following descriptions most closely corresponds to being part of a command system, a market system, or a laissex-faire system. a. A woman who wants to start a flower shop finds she cannot do so unless the central government has already decided to allow a flower shop in her area. b. Shops stock and sell the goods their customers want but the government levies a sales tax on Each transaction in order to fund elementary schools, public libraries, and welfare programs for the poor. c. The only taxes levied by the government are to pay for national defense, law enforcement, and a legal system designed to enforce contracts between private citizens.

Short answer

a. Command system; b. Market system; c. Laissez-faire system.

Step-by-step solution

Understand the Systems

First, let's understand the key features of each economic system. In a command system, the government or central authority has comprehensive control over the economy, including production and distribution decisions. In a market system, economic decisions are made by individuals and businesses based on supply and demand with some government interventions, such as taxation. In a laissez-faire system, there is minimal government interference, and individuals and businesses make their own economic decisions within a framework of law enforcement and contract rights.

Analyze Description a

Consider description (a): 'A woman who wants to start a flower shop finds she cannot do so unless the central government has already decided to allow a flower shop in her area.' This scenario shows that the government exercises control over business operations, which aligns with the command system where the central authority makes key economic decisions.

Analyze Description b

Evaluate description (b): 'Shops stock and sell the goods their customers want but the government levies a sales tax on each transaction in order to fund public programs.' This description indicates that the shops operate based on consumer demand (a feature of a market system), while the government collects taxes to support public services, showing government involvement in the market.

Analyze Description c

Assess description (c): 'The only taxes levied by the government are to pay for national defense, law enforcement, and a legal system designed to enforce contracts.' Here, the government's role is limited to basic functions essential for protecting the rights of individuals and enforcement of contracts, which is characteristic of a laissez-faire system.

Key concepts

Command System

The command system is an economic system where the central government holds significant sway over the production and distribution of goods and services. In such systems, the government decides what to produce, how much to produce, and for whom production should be aimed. Individuals and businesses have little autonomy to make these decisions on their own.
In a command economy, resources are typically allocated based on the needs determined by the state rather than market forces like supply and demand. This system can result in a more equitable distribution of goods and services, seeking to serve the needs of the entire population. However, it can also lead to inefficiencies due to lack of competition and innovation.
Here are some characterized features of a command system:

• Centralized decision-making
• Limited private enterprise
• Government ownership of key resources

Due to the high level of control, starting a business, like a flower shop, would depend on government approval, as the central authority makes key decisions regarding business operations.

Market System

A market system, in contrast to a command system, is characterized by the decentralization of economic decisions. Here, the forces of supply and demand guide individuals and businesses in making decisions.
In a market economy, prices and the allocation of resources are determined by the interactions between buyers and sellers. This creates a competitive environment that encourages innovation and efficiency.
While businesses and consumers have the freedom to make their own choices, there is still some level of government intervention to ensure fair play, such as imposing taxes to fund public services.

• Economic freedom for consumers and businesses
• Competition-driven market
• Government plays a regulatory role

The description of shops freely operating and the government levying sales tax fits well within a market system as it combines elements of consumer choice with the government’s role in providing public goods through taxation.

Laissez-faire System

The laissez-faire system is a form of market system that moves towards minimal government intervention. The name "laissez-faire" is French for "let do," implying that the government should let businesses and consumers operate freely as much as possible.
In this system, the government's role is primarily to ensure national security and to enforce the legal frameworks that allow individuals to transact safely. There are no taxes or interventions beyond these basic functions.

• Minimal government interference
• Emphasis on individual responsibility
• Protection of property rights

This leads to a focus on private enterprise and initiative, with the belief that less regulation fosters entrepreneurship and economic growth. The description of only levying taxes for national defense, law enforcement, and contract law aligns with the principles of a laissez-faire system.