Mechanisms for answering the 3 fundamental economic qs of what to produce, how to produce it and for whom...
126.96.36.199.1 1 Market System
Pure market systems are free of government intervention
Price mechanism is how the 3 Qs are answered
Price acts as a signal, rationing device and incentive and can transfer preference
Firms respond to increased demand to achieve profits
Assumption is consumers aim to maximise utility
Has no public goods and under-provision of merit goods and over-provision of demerit. Externalities occur
188.8.131.52.2 2 Centrally planned
100% government influence and the 3 Qs are attempted to be answered by them.
Failed experiments in Soviet Union and China - Communist
Government decides what, how and for whom the produce goes to meaning no consumer or producer sovereignty.
Profit is not an objective
Factories get production targets
184.108.40.206.2.1 3 Mixed
Blend of market and planned economies.
Quantity varies massively
Most economies are mixed
Most efficient as benefits of both government intervention as well as market forces. Correcting externalities (tax/subsidy) and provide public goods.
Disadvantage is in terms of politics and economics of government - how much intervention is best for society - this is massively disagreed upon
220.127.116.11.2.2 Advantages -
From each according to ability, to each according to need.
No profit so not exploitation
Government does not/cannot know what everyone needs
Laziness and low productivity as no profit incentive
Easy for corruption
18.104.22.168.3 Issues of transition from planned to mixed
Inflation due to price adjustments
Increased freedom is new, culturally people need to change
Skills and efficiencies need to develop
Time is needed to develop markets
Risk is uncomfortable and less likely initially
Government micro management needs to reduce to allow market forces to take over - difficult
1.1.3 Pareto optimal
Noone can be made worse off when improving the situation for another
1.2 Factors of production
Land - Rent
Labour - Wages/salaries
Capital - Interest
Enterprise - Profit