Economic Development - The comparison between FREE MARKET and GOVERNMENT INTERVENTION

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ECONOMIC DEVELOPMENT

(Free) Market

Govenrment

The majority of MDCs and LDCs are mixed economy.

At micro level,

we need to look into MARKET FAILURE, a FREE MARKET needs GOVERNMENT INTERVENTION:

- Externalities (Merit/Demerit Goods and Open Access Resources)

- Public Goods

- Abuse of monopoly power

At a macro level,

in a business cycle, a FREE MARKET needs GOVERNMENT INTERVENTION to impose stabilization policies, which help to achieve MACROECONOMIC OBJECTIVES:

- Price Stability

- Full Employment

- External Balance

- Price Equality (market force caused more disparity)

- Economic Growth (market force - to move away from a command economy)

In a FREE MARKET, there is the need for RESOURCE ALLOCATION - by the use of the price mechanism:

"Those who can pay the highest price will get the resources"

- The rich will get richer (capitalist) --> Price Inequality

Economics

12 Dec, 2013

With GOVERNMENT INTERVENTION, there is the need to decide on the focus on either:

- Rural sector

- Urban sector

(Some questions will ask for the...FOREIGN FACTORS)

Integration of different sections, for example between:

- Foreign Trade

- Foreign Direct Investment

- Foreign Aid

- Foreign Loans

They may ask "to what extent...". Therefore, you should be able to compare and contrast, and casting a judgment by considering both positives and negatives.

There may also be the need to know the use of:

Export Promotion --> Import Substitution --> Export Promotion

(Commodities) ..........(Infant Industries)..........(Manufacturing Exports)

*"GROWTH" - main focus should be on Economic GROWTH

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