Question

Our concept of what a business is involves the important use of economic calculation in the decision-making process by an entrepreneur for forming or not forming a business unit, or if expansion of an existing business unit is contemplated, whether or not to proceed with the expansion. The entrepreneur attempts to construct a persuasive story, or case, persuading him- or herself to undertake (or not to undertake) the formation of a new business, or expansion of an existing one. Show how the market system adjusts to a changing landscape by discussing the functions of price and what goes into economic calculation. How does the socialist commonwealth adjust to change?

Answer 1

The market system adjusts to a changing landscape through the functions of price discussed below:

• Signalling function:They adjust to demonstrate where resources are required and where they are not,prices rises and fall to reflect scarcities and surpluses.If price rises then it signals to suppliers to expand production to meet higher demand and vice-versa when the price falls
• Transmission of preferences:By analysing the choices consumers send information to producers about the changing nature of needs, higher prices act as an incentive to raise output because the supplier stands to make a better profit and when the demand is weaker then supply contracta as producers cut back on output
• Rationing function:Prices serve to ration scare resources, when there is a shortage the prices bid up leaving those who are willing to pay for the product.The market price act as a rationing device to equate demand with supply

The economic calculation includes all the information provided through market prices and that bureaucratic or technocratic methods of allocation, lack methods to rationally allocate reource.It requires common basis for comparison for all forms of capital and labour.

Socialist commonwealth adjust by sharing ownership of resources and central planning provide a more equal distribution of goods and services and a more equitable society.It adjusts by including the production for use rather than for profit,an equitable distribution of wealth and material resources among all the people.The government owns and controls the means of production