QUESTION:
Market economy is the one in which decisions about the allocation and use of resources by producers and consumers are primarily through a system of markets and prices (Hodgetts, R and Smart, T.L.). According to O’Connor (1988) a market economy is an economic system where resources are largely owned by private individuals and firms who seek to make profits. In a market economy there is operation of free markets of demand and supply to determine the market equilibrium. Also there is very little or no government intervention in the economy. It is also called the Laissez faire. McConnell, Brue and Flynn define a command economy as the one in which government owns most property resources and economic decisions occurs through the central economic plan. In a command economy there is no private participation in economic activities meaning that the government solves the basic economic problems of scarcity.
The basic economic questions are; how to produce, what to produce, in what quantities and for whom to produce. In a market economy, these questions are answered by certain individuals who own the factors of production that is land, labour and capital in the private sector. The question of what to produce is answered by demand in this economy (market economy) since the individuals have the objective of profit maximisation, hence they will produce the commodity that consumers are willing and able to buy. After deciding on what to produce, there is need for knowing the quantities to be produced. The quantities are determined by the market forces of demand and supply, referred to as an invisible hand by Adam Smith in his book The Wealth of Nations. This can be illustrated bellow:

Supply

P*

Demand
Q*
Whilst, according to O’Connor, in a command economy the question of what to produce is answered by government authorities. The government employs a group of individuals to carry out market research in order to identify the basic needs and wants of the public. In this economic system, after carrying out the research, they (the government) will gather and analyse the data collected from the market and come up with a final conclusion on deciding what to produce depending on the research done.
In a free market economy the question of how to produce is answered using the least cost means of production since their motive is to maximise profits. This involves determining how best to employ the nation’s natural, human and capital resources. Production can simple-based primarily on human, labour or complex-based primarily on the use of machines (O’Conner). Whereas in a command economy the how to produce question is answered by the central planning authorities basing on the available factors of production.
When in a free market economy, they (the private individuals and firms) produce the commodities for certain individuals who have the buying power that is those who are willing and able to purchase the supplied commodities (effective demand). Scarcity makes it not possible to satisfy everyone’s want, so the private firms and individuals decide on whose wants should be satisfied, that is who gets the goods and services that have been produced. Whereas in the command economy the commodities are produced for the whole society since their objective is that of maximising the welfare of the whole society.
Since resources are scare, in the free market economy resources are channelled to the most productive and profitable sector of the economy. Under this type of economic system all major decisions regarding production and distribution of resources are left to the private sector. Individuals and firms are responsible for the allocation of resources so as to boost production which brings profit. Resource allocation in this economy is via the medium of the market with the absence of government intervention. Producers concentrate in allocating resources which brings goods that are in high demand.
Whilst in the command economy resources are allocated by the central planning boards and are distributed through means of rationing, coupons, surveys and shadow pricing. The central planning authority is there to specify production targets for different firms to enable them to achieve the specific production goals set for them. In addition, workers may be assigned by the state to a certain occupation or a certain geographical area.
In a free market economy there is a large private sector than public sector. In actual fact a complete market economy has a public sector, whereas in a command economy there is high portion of the public sector than the private sector (Dan Moynihan, Brian Titley). The resources in a market economy are privately owned whereas in a command economy they (resources) are owned and controlled by the state. In private sectors thee is private ownership of property which in turn encourages innovation, investment, exchange of ideals, property maintenance and economic growth (McConnell, Brue and Flynn). Whereas in the public sector property and all other resources are owned by the government.
In a planned economy there is production and provision of public goods. A public good is a good that is non-excludable and non-rivalry in consumption. Non-excludable means that individuals cannot be excluded from using the good (ZaCowen). For example, tower lights are non-excludable in the sense that it is impossible to prevent people from using it. Non-rivalry means that one individual’s use does not reduce the availability to others. The main reason for the government to provide public goods is to improve the welfare of the public at large (which is also their main objective). These public goods are provided for free in a command economy than in a market economy. Whereas in the market economy there is no provision of such commodities since private individuals and firms will not invest enough in producing public goods for neither can they make profit out of it nor is it their objective or responsibility. They (public goods) are not produced since it is difficult to price them. Public goods cannot be literally packaged and get sold on the market.
In a planned economy there is high production and provision of merit goods. A merit good is a good which has greater benefit to the society than private benefits. This is because in the long run, the economy and society as a whole will have greater benefits from a merit good. The government encourages citizens to consume merit goods (examples of merit goods are education and health. Zimbabwe encouraged its citizens by providing free education for all, soon after the independence in 1980. However in a free market economy there is under provision of merit goods, since the entities are mainly focused on profit maximisation. They consider demand for merit goods before provision. Merit goods are charged in this economic system (for example private roads and private colleges). This can be shown as below: MSC=MPC
Costs or Benefits benefits

MSB

MPB
Quantity
Demerit goods are not provided in the planned economy. This is because they have long term effects on the economy and society (example of demerit goods are cocaine, marijuana and opium’s consumption is discouraged in the planned economy). Whereas in a free market economy demerit goods are provided considering their demand, where there is high demand production occurs so as to attain profits. The welfare loss in the long run due to consumption of demerit goods can be depicted by the diagram below: MSC
Costs or Benefits Welfare loss MPC

MSB

Quantity
This is because firms and individuals in a free market economy seek to maximise profits so they produce goods which are needed by the consumers despite costs they cause to the society.
Consumer sovereignty is all about taking into consideration consumer preferences first that is consumers are treated as kings. This is a characteristic feature of the free market economy. It ensures that consumers are free to buy goods and services that best satisfy their wants and which their budget allows (McConnell, Brue, and Flynn). A price is therefore set where price equals demand. Quality of products is determined by the consumers as they tell the producers what they want so that they can make improvements. Whilst in a command economy consumer preferences are abused. In this case the government sets the price, answers the basic economic questions and the producers will tend to answer the needs and wants of the government (which they believe is in the best interest of the entire society) and not of the customers, hence there is no consumer sovereignty in the command economy. Consumer sovereignty brings choice on the market and in the command economy choice is limited since goods are produced basing on the needs of the majority. What of the minority?
Free market economies are highly characterised with competition, this resulting in the production of high quality goods as compared to the command economies. Individuals and firms try to make profits and maintain position in the market by producing high quality goods which attracts customers. They fight this competition through high product quality produce, other than price since there is one set price which rules on the same product. For example if the price of a pen is a dollar, firms and individuals look for methods of production which increase the quality of the pen but not increase the production cost but keeps it constant or reduce it. This enables firms and individuals in the market economy to be innovative and creative in order to withstand competition. While as in the command economy the quality is substandard due to lack of competition, usually firms in this economic system are not profit driven or oriented since they are financed by the government and results in them not caring about expenses of running below capacity. Subsidies and government loans lead to relaxation of firms in innovation for quality products hence in a planned economy there is less quality. High quality products are as a result of firms acquiring latest technology, meaning that for firms to be highly competitive they should produce with a high unique selling point thereby increasing quality.
Efficiency
Coming to an overall conclusion, mixed economy is most preferable because it allows a wide range of activities in a country for example Zimbabwe and the United Kingdom have mixed economies. The elements of free market economy and planned economy if they are integrated together, formulating a mixed economy will bring about a more healthy economy. Problems of market failure in mixed economies are reduced as government intervene by making policies such as environmental management act and policies that forces industries to use technologies that reduces negative externalities and improvement of lifestyle in mixed economies.

Reference list
Sameulson P A (1998) Economics Pitman publishers Moyniham D (2000) Economics Oxford University
O Connor (1988) Economics. Pitman Publishers
Lipsey,R.G (2004) Positive economics Oxford University
McConnell, Brue and Flynn.(1999) Economics Oxford University
Hodgetts, R and Smart, T.L.(1995)Principals of Economics