ILO:

a) The distinction between free market, mixed and command economies: reference to Adam Smith, Friedrich Hayek and Karl Marx

b) The advantages and disadvantages of a free market economy and a command economy

c) The role of the state in a mixed economy

Adam Smith

Smith argued that economies function most efficiently and fairly when individuals are allowed to pursue their own interests; the great threat to economic growth is government intervention.

Explain how a fall in demand for CD music systems would lead to fewer resources being allocated to the production of this good in a market economy.

Karl Marx

Marx considered the flaws of free market economies; he argued that the free market economy would break down because the owners of business made huge profits at the expense of workers.

The World According To Marx

Activity:
 
Compare the difference between Adam Smith and Karl Marx in this students video.
How would Karl Marx's philosophy be evident in the Kaiser Chiefs song "factory gates"?

Related articles:

Melvyn Bragg and guests discuss Karl Marx. "Workers of the World Unite! You have nothing to lose but your chains", 

Marx's theory on labour still has capital

Question:
What problem would Karl Marx attach to capitalism?
How big a problem is this in your opinion? Justify your answer. 
 

Question:
The end of the 20th century saw the general collapse of communism. 
Identify the reasons why communism in practice had major weaknesses as an economic system.

Friedrich Hayek

Hayek was critical of command economies; he was concerned about the information required to distribute resources effectively and argued it was impossible for the government to process this information effectively.

Masters of Money: Friedrich Hayek

"The Road To Serfdom" Hayek's 

Radical Economics: Yo Hayek!

Evaluation:

Most economists would argue that free markets are the most efficient (in terms of using resources in the best possible way to meet the needs and wants of consumers). However, when equity is considered, most economists would also argue that free markets lead to an unequal distribution of income and wealth, since owners of capital and entrepreneurs tend to accumulate the most income/wealth and many people, such as the sick or elderly, are unable to work. As a result, most economies today are mixed economies, where markets allocate many resources, but governments intervene to different extents in order to ensure a minimum standard of living and to correct other market failures.

Governments intervene by raising revenue through taxes and redistributing income in the form of benefits and direct provision of services such as healthcare.