Question

Imagine that Canada did not have a market-based economy, but instead had a centrally controlled, planned economy. So, instead of letting private businesses make decisions about what to make, these are all made by government-controlled manufacturers and producers. You are one of the central planners, in charge of making decisions about what the government should produce. Your focus is on clothing. Explain the information you would need to know to improve the social efficiency of the clothes that are produced. Then, explain how the introduction of markets would improve the social efficiency of the production and distribution of clothing.

Answer 1

Social efficiency will arise when there is optimal distribution of the resources in a society wherein marginal benefit is equal to marginal cost.

Thus in order to improve social efficiency, I would need information on the demand for clothes in the country and overseas. Is it expected to rise, fall. Whether production of clothes minimizes waste and that what are the production costs which should be at its lowest level. Information on who are the cheapest lenders and cheapest raw material producers so as to get involved in the supply chain and offer the product to the consumers at a socially efficient price.

Introduction of markets would improve the social efficiency of the production by employing machines which require less inputs in order to produce the same number of outputs which were produced by labour before. This reduces turnaround time of the final product and enhances quality of the final product. Increase in competition because of the introduction of markets leads to competitive prices and improved quality and more participation if the demand for clothes is larger in an economy. There are several more supply chains in the distribution of clothing and clothes manufacturing and final product selling time reduces because of this efficiency and coordination.