Basic Economics Problems

BASIC ECONOMICS PROBLEMS 1. 2. 3. 4.

What to produce? How much to produce? How to produce? For whom to produce?

The above Problems can be solved by varies Economics system: (A)

Capitalist (no intervene by government)

(B)

Command economy

(C)

Mixed economy

(A)

-centrally planned/communist system (G controls everything).

CAPITALIST SYSTEM - No G intervene

(1)

Existence of Consumer Sovereignty (power) -Consumer determines and influence the types and qualities to produce.

(2)

Mobility of labour- geographical and occupational

(3) (4)

Right to own property Presence of competition -R&D, invention & innovation-techniques ↑become more competent

(5) (6)

Businessmen are motivated by profit Wide gap between rich and poor (G do not intervene)

(B)

CENTRAL PLANNED

(1)

Everything control by government – less private sector Basic problems solve by G such as: What to produce? How much to produce? How to produce? For whom to produce? (2)

Consumer Sovereignty does not exist. Consumer has no choice but to accept the G decision.

(3) ↓ (4) (5) (6)

(7)

Absence of competition- R&D ↓, technology ↓low invention ↓innovation

Unemployment ↓- jobs will be given by G. BUT scarce resources. No different between rich and poor (classless society) No business freedom - Private enterprise does not exist - Economy is run by G G may produce goods not required by public. - welfare people ↓ - military, space programs and equipments

(C)

MIX ECONOMY

(1)

Public & private work together for the economy growth

(2)

Public sector- not compete BUT complement- the private sector by providing infrastructure so that economic activities can be carried out effectively and efficiently

(3)

G. NOT intervene all matter except: (a) - initial cost/fixed cost (too exorbitant for private sector to undertake) (b) - Provision of social services (service must provided to ↑ SL) (c)

- avoid duplication

- Wastage of resource which are scarce - avoid unnecessary competition (d)

- strategic/ military reasons – self sufficient for food and military equipment

(e)

- Humanitarian Reasons- cater for all especially Poor

(4)

Reduce income inequality- impose progressive tax system

(5)

G control monopolies - avoid Exploitation - G control and regulate the power of monopolists