Question

Week 13 MNG ECO Writing Assngmnt/Q 1

A. Differentiate the concepts Free Market Economies and Collectivist Economies. State the Pro's and Con's of market regulations.

B. What is the concept Pareto Efficiency? Provide a Real Life example of Pareto Efficiency.

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Answer 1

Solution A:

Free market economies involve no or minimal government control and is dependent on supply and demand factors. This is also called black market where only private transactions between buyers and sellers take place.

Pros: This type of economy supports economic growth and huge volume of trade as well as seamless inflow of money.

Cons: There can be great deal of fraudulent activities which can lead to bankruptcy or collapse of entire economy and cause wide scale losses in long term.

Collectivist economy : here entire stream of production and distribution of goods are controlled by group or government. This does not tgrive black markets.

Pros: Regulates all fraudulent activities and trades which violate corporate governance.

Cons: There is great deal of micro management which can cause delay in execution and increase cost of doing business.

Solution B:

Pareto efficiency is an economic state where resources cannot be reallocated to make an individual better off without making any one individual worse off thereby creating optimal condition.

For example, in a factory the organisation may try to implement Pareto efficiency by reallocation of labor resources such that productivity boosts for assembly workers and at same time without decrease in productivity of shipping workers.