Freedom vs. Restrictions on Consumer Behavior

In capitalistic system, consumers have the complete freedom regarding their consumption. Consumers are at full liberty to buy whatever products and services they choose and are able to afford. It is the consumers who dictate what are to be produced and in what quantities. This is referred to as ‘sovereignty of consumers’. The consumer is the dictator in such an economy. In socialist countries, the economic planning regarding ‘what to produce’ and ‘for whom to produce’ comes under the purview of the Central Planning Authority.

The goods and services are distributed among the people through the government agencies. All the decisions regarding the production of goods and services and distribution of end products are not based on individual tastes and preferences, but on national goals. Existence vs. Non-Existence of Price-Profit mechanism: In a market economy, efficiency in the economy is achieved only through profit-motive and there is no existence of price-control system in such an economy. When the prices rise, profits will usually follow suit, and the rising profit would induce the producers to expand their business.

Herein lies the existence of ‘invisible hand’ of price-profit mechanism which always maintains a balance between consumer’s demand and producers’ supply. Here, the price plays a major role in determining the equilibrium of demand and supply of products and services. The United States, Britain, France etc. can be regarded as capitalistic or market economies. On the other hand, in centrally planned economies, owing to government’s ownership and control on the production procedures, the price system ceases to provide an automatic control mechanism over the economic operations.

The elimination of the price system replaces the motive of private profit by that of social gain. In fact, social gain forms the basis of socialistic or centrally planned economy. Such an economy is based on the ideal of equal opportunities for all, equal distribution of income and wealth etc. The USSR was an example of such an economy. At present, China can be regarded as the best example of a centrally planned economy. Conclusion In fact, virtually all the economies are, to some extent, mixed in nature.

This is because, no socialistic economy is devoid of some private ownership, and capitalist economies invariably possess some Government-regulated enterprises. Even in the United States and Britain, both private and public sectors exercise their control over the functioning of the economy. However, while the capital planning has brought about an amazing development in some European countries in the last fifty years, the remarkable success and miraculous achievement brought by central planning in several Asian countries has strengthened the people’s confidence and interest in it.

Thus, it may be concluded that the private and public sectors should not be looked upon as two distinct entities within a same country; they are and must function as an integrated portion of the same organism.


Market Economy, Answers. com, http://www. answers. com/topic/market-economy Mitra, J. K. Economics, An Introduction to its Basic Principles, 1968 Mukherjee, S. Nature and Functions of the Economic System, Modern Economic Theory, Ed. 3, Wishwa Prakashan, London, 1996, pp. 50-53 Capitalist Economy, University of Minnesota, http://www1. umn. edu/humanrts/edumat/sustecon/others/capitalist. htm

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