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Economics is a science that analyses what, how,
and for whom society produces. The central economic problem is to reconcile the
conflict between people's unlimited demands with society's ability to produce
goods and services.
In industrial Western countries markets are to
allocate resources. The market is the process by which production and
consumption are coordinated through prices.
In a command economy, a central planning office
makes decisions on what, how, and for whom to produce. Economy cannot rely entirely
on command, but there was extensive planning in many Soviet bloc countries.
A free market economy has no government
intervention. Resources are allocated entirely through markets.
Modern economies in the West are mixed and rely
mainly on the market but with a large dose of government intervention. The
optimal level of government intervention remains a problem which is of interest
to economists.
The degree of government restrictions differs
greatly between countries that have command economies and countries that have
free market economies. In the former, resources are allocated by central
government planning. In the latter, there is not any government regulation of
the consumption, production, and exchange of goods. Between the two main types
lies the mixed economy where market and government are both of importance.