Cambridge International as and a level Economics Ebook

Figure 1.4 
Mixed economic systems
Strong
Weak
Government control
over the allocation
of resources
Weak
Strong
Market as a means
of allocating resources
Command
economy
Market
economy
Albania
North
Korea
Former
Soviet Union
before 1986
Hungary
France
Pakistan
UK
USA
Singapore
Central Hong Kong
24
Cambridge International AS Level Economics

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Issues of transition when central 
planning in an economy is reduced
As explained above, most developing economies have 
a strong foundation based on the model of a planned 
economy. Over the past 20 years, most have recognised 
the benefi ts for the economy when less activity is 
controlled by the government and when competitive 
markets and the private sector have an increasing role 
to play. Internationally, this approach is consistent with 
that of the World Bank, which – as part of its policy 
to promote development – encourages such economic 
reforms. It has also been an essential requirement for 
those countries of Central and Eastern Europe that have 
joined the EU.
Figure 1.5
 shows two diagrams that represent the 
general position of a planned economy before reform 
and the situation once changes have been introduced. 
SELF-ASSESSMENT TASK 
1.4
1
Th
ink carefully about the ways in which your own 
economy allocates resources. Make a few notes on 
the ways in which:
■
the 
government
■
the market mechanism 
are responsible for decision making.
2
Use the above information to insert your own 
economy into the scale shown in
 Figure 1.4.
How has its relative position changed in 
recent years?
3
What information might an economist use 
to quantify the relative importance of the 
government and the market mechanism within 
an economy?