Question

How do people compete to obtain goods and services when the market system allocates them?

How does government protection of property from theft and destruction help the market system work bette

Why did productivity increase when the villagers in Xiaogang China privatized their land?

Answer 1

1. Competition Minimizes Economic Costs
   • The market system works by producing what consumers want for the least cost. These wants are communicated by the prices that consumers are willing to pay for products and services.
   • The essential feature of the market system is that people must have freedom:
     • freedom for consumers to buy what they want, and
     • freedom for producers to produce what consumers desire.
   • ​​​​​​​​​​​​​​Businesses must not only compete for customers, but they must also be able to compete for economic resources. To win both competitions, businesses must be able to produce their product for minimal cost. This maximizes their profit and allows them to compete for economic resources to produce their product.
   • Technology is a major factor in reducing costs. For most businesses, land and labor do not vary nearly as much as technology, so the most cost-efficient producers are the ones that can use technology best. Technology not only allows the cheapest production, but it even determines what can be produced, or what can be produced profitably.
2. Government is protecting the property from theft and destruction help the market system by
   1. The government tries to combat market inequities through regulation, taxation, and subsidies.
   2. Governments may also intervene in markets to promote general economic fairness.
   3. Maximizing social welfare is one of the most common and best understood reasons for government intervention. Examples of this include breaking up monopolies and regulating negative externalities like pollution.
   4. Governments may sometimes intervene in markets to promote other goals, such as national unity and advancement.
3. After the Household Responsibility System was introduced, the collective-farming policy was discarded. The original collectively owned land was reassigned to two or more and their autonomy of production and operation was guaranteed. The farmers were allowed to produce by themselves and were expected to be responsible for their own earnings and losses. They were only required to submit part of the yield as taxes to the government and were entitled to sell the excess gains in the free market. Such institutional reform significantly raised their willingness to work hard and produce a greater yield. With the year of 1978 as the reference point of 100, the crop output increased from 77.10 in 1970 to 148.21 in 1987; the crop output saw an increase of 48.21% in 9 years.

(extra info)

advantages of privatization

• raising agriculture output, increasing labor efficiency,
• promoting scaled-up and modernized farming,
• protecting farmers’ rights,
• improving farmers’ welfare, and
• promoting migration, urbanization and industrialization

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