Systems of Allocation
Transcript of Systems of Allocation
An economy is the large set of inter-related productionand consumption activities that aid in determininghow scarce resources are allocated. In an economy,the production and consumption of goods and servicesare used to fulfil the needs of those living andoperating within it.
In economics, the term refers primarily to the “allocationof resources,” the process by which economicresources get allotted (apportioned, assigned) to theirparticular uses for directly or indirectly satisfying humanwants. The allocation process in a particular society'seconomy is the process by which the three fundamentaleconomic questions get answered in that society.
Economic Systems
• Def. The method used by a society to produce and distribute goods and services.
• Or, How the government tells us what we can get and how to get it!
Economic system provides a society with a frameworkthrough which it can maximize the use of limitedresources for the satisfaction of economic wants.
It ensures efficient production and distribution of goods and services to sustain human needs over time.
All Economic Systems Must Consider the
Following Questions:
1. What goods and services to produce?
2. How will they produce them?
3. Who will get them?
4. How much will they produce now, and how much later?
• Each economic system answers these questions in a DIFFERENT WAY.
An economy in which the government has the power over the financial
management of the country
COMMAND ECONOMIC SYSTEM
COMMAND
“to give orders”
3. Since hourly rate of pay is regulated, also tending to be just enough to survive, people
will tend to try and break the rules.
5. The command economy has state-owned entities as well as privately-owned entities that are
controlled by the state.
ADVANTAGES
1. Low unemployment rates due to the regulation of jobs by the government.
2. Everyone has access to health care services and necessary services needed to live, and usually the fee is either low or free.
3. Decisions are made quickly by state or government officials.
NORTH KOREA
•North Korea: After World War II, President Kim Il-sung created theworld's most centrally-planned economy. It created food shortages,malnutrition, and several bouts of mass starvation. Most stateresources go into building up the military.
IMPORTANT: In 2018, command economies likeChina, Russia, and Iran have shifted toward moreeconomic freedom, while North Korea and Cubaremain economically restrained.
What Are the Advantages of a Command Economy?
1. Operations are consistent within a command economy.
2. It creates a flexible industrial sector.
3. The exact demands of a society can be met.
4. Any resource can work with any other resource.
5. It offers socioeconomic equality for much of the population.
6. Acute demands can be quickly met.
What Are the Disadvantages of a Command Economy?
1. It is a governmental structure which reduces personal freedoms.
2. It limits innovation.
3. It encourages illegal activities.
4. It eliminates the competition.
5. It reduces communication.
6. It reduces exports.
7. It creates incentives that people don’t see as an incentive.
• The market economic system started in England.
“The key to progress is allowing individuals to
pursue their self-interest and to satisfy themselves
without government interference as much as
possible.”
Advantages of a Market Economy
1. There is limited government intervention in a marketeconomy. The government as discussed earlier is only concerned with
protecting consumers and other market participants and ensuring nationalsecurity. Limited government intervention ensures a competitiveenvironment. The high degree of competition ensures business efficiency inthe market where producers try to produce at the lowest cost tomaximize profits.
2.Consumers need money to buy goods and services. In a
command economy, factors like wages, income, etc. are determined by acentral authority, therefore it can also be said that there is a lack of motivationto work more in order to earn more. However, in a market economy, theworkers have the motivation to work more in order to earn more. Thismotivation to work increases the output and productivity in an economy.
Advantages of a Market Economy
3. Economic agents work for their self-interest. So, inorder to maximize their profits, individuals andbusinesses look for new products or technologies togain a competitive edge. Note that there is no suchmotivation in a command economy.
4. The prevalence of competition in the market alsoensures that businesses are producing better qualitygoods to attract more consumers and increase sales toearn more profits.
Disadvantages of a Market Economy
1. Limited government intervention may lead toenvironmental damage. Most environmental-friendly production techniques involve major costs,businesses tend to avoid investing in them. So this lack ofinvestment in environmentally friendly practices damagesthe environment
2. Wealth generates further wealth as return oncapital is greater than the economic growth. Such growthcan lead to income and wealth disparity in the economy.
3. Health and safety measures are costly, and abusiness that is purely profit-driven, will not adoptthese measures to increase their profits. This oftenleads to poor working conditions for labor used inproducing these goods and services.
4.Production and prices are determined bymarket forces and so businesses only producethose products that can maximize their profits. This islikely to create a situation where the businesses donot produce those goods which are less profitableeven though they are essential for society.
POLITICAL-ECONOMIC THEORIES IN MODERN ERA
- focuses on the interrelationships
among individuals, governments, and public policy.
CAPITALISM- an economic and political system in which a country's trade and industry are
controlled by private owners for profit, rather than by the state.
- A society based on the privateownership of resources andmeans of production, which areconcentrated in the hands ofthe capitalists.
Capitalists = Business owners
Free enterprise, or the free market, refers to
an economy where the market determines prices,
products, and services rather than the government.
Creates intense competition
among businesses
Production, distribution, and
consumptionMarket Signals
Money votes that consumers cast when they buy goods and services in the market
TAKE NOTE: Businesses will produce only the commodities consumers buy and sell more of them in markets where the demand for them is high.
Aims for the highest profit
Outdoing their competitors
Use the most efficient means of production
Maximum profit
CAPITALISTS
• Places enormous power in the hands ofconsumers.
• Businesses who wish to take advantage ofthe consumers do not have a place incapitalism.
CAPITALISM
❖Envisions utopia - a perfect society that harnesses thefull potentials of the people.
Charles Fornier
2 Main Forms of Socialism
Reform Socialism
- calls for the gradualtransformation of the
economy from capitalismto a system of worker orState ownership of themeans of production
Revolutionary Socialism
- predicts a violent overthrow of the capitalist system: the class struggle
between the proletariat and capitalists would end in a
revolution with former emerging victorious
FASCISM
➢Major political-economic systym in the early and mid-1900s➢Countries that once have this
economic system: ITALY, JAPAN,AFRICA, and ARGENTINA➢Hitler’s Germany called it
NATIONAL SOCIALISM➢FASCES = a symbol of authority in
Ancient Rome
Benito Mussolini – the first leader to use the term fascism to describe his government in 1920s
FASCISM• Establishes an authoritarian
government• Deprives people of their liberties• Forges political alliance with the
capitalists
• Adolf Hitler used this strategy to rearm Germany after World War I despite the restrictions imposed by the Treaty of Versailles.