Question

Reflective Question # 1:
Venezuela is a Latin American country that is rich in oil preserves. This petroleum sector is
mainly owned by the government, in a sense that it controls and prices it. The petroleum sector
constitutes around 85% of the exports in the country. In Venezuela, there are very few private
sectors.
Germany is one of the top 5 richest countries in the world. It provides its citizens varieties in
consumer goods and business services. But the government imposes regulations even in those
areas to protect its citizens. Thus, the decision about what to produce is distributed among
private and public sectors.
1- What type of economic systems do Venezuela and Germany apply? Explain.
2- For a certain country to adopt a market economic system, what are the decisions they need to
take? Illustrate by providing an example.

Answer 1

1. Venezuela's economic system shows the features of the centrally planned economy where a decision regarding the central problem i.e. what to produce, how to produce, for whom to produce is taken by the government and factor of production i.e. land, labor, capital, and entrepreneur is in the hand of government. whereas, Germany shows the feature of a mixed economy where a decision regarding the central problem is taken by both the plyer's government and private individuals. here means of production is shared by both the players in order to solve the economic problem or the problem of choice.
2. A market economic system refers to a system where economic decision and price and quantity of goods and services are guided by the interaction between demand and supply. government intervention is there but barely confined to some limited area. in order to become a market economic system, an economy must east all the restrictions imposed by the government in terms of license and quotas and permits. the government should disinvest or privatize. labor laws should not be cumbersome for the business. the government should make sure for healthy competition among competitors etc. India in 1991 opted for the market economy by liberalizing, privatizing, and globalizing. which increases its GDP. under such policies it removes all the restrictions on industries and opens the home country to the rest of the word. to ensure the healthy competition it constitutes a competition committee.