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* Assess the relative merits and demerits of a market economy. * Why have each East European economy experienced problems in their transition from planned to more market economies? A market economy is defined as an "economic system, which resolves the basic economic problem mainly through the market mechanism." There are four main type of actors within the system which are consumers, producers, owners of private property and the government. In a pure market economy, it is argued, that consumers, producers and property owners are selfish in that all their decisions are based upon private gain and maximising their individual welfare. For example producers strive to maximise profit whereas the owners of production aim to maximise rent, wages and profits. Adam Smith argues that although economic actors pursue their own self-interest, the result would be an allocation of resources in the economy, which would benefit the society as a whole, and...

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