In: Economics
For an economy in equilibrium (i.e. in all of that economy's markets, quantity demanded equals quantity supplied and thus no shortages or surpluses), a given industry can expand only at the expense of other industries. Why?
Workers might be put out of jobs, so there must be a public unemployment insurance program that will be funded through taxes imposed on other industries. |
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At any moment, the factors of production are limited; one industry can be expanded only by diverting to it land, labor, and capital that would otherwise be employed in other industries. |
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Oligopolies might form that cartelize certain sectors of the economy. |
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Producers need to be paid off well to agree to shut their businesses down to free up their workers to go into other industries. |
What is one of the great historical ironies about the socialist attempts to abolish private property and outlaw all market activity?
Illegal markets in just about everything emerge spontaneously as people end up buying and selling anything they can in order to survive, which socialist policies specifically attempt to prevent. |
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In many ways, Mao and Stalin were actually rivals among communist countries in the world; one would think that they should have been natural allies. |
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Food and other goods were plentiful; shortages began only when international capitalist interests began intervening in those countries. |
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People could have personal items, but they couldn't own their houses. |
According to Ludwig von Mises's "impossibility thesis," why is rational allocation of scarce resources to their most valuable uses impossible in a socialist economy?
Workers do not face the correct incentives that will motivate them to produce; many will free ride and live on the state welfare program. |
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Without actual market prices for capital goods and natural resources, socialist central planners cannot conduct economic calculation of costs of production and profit and loss; therefore, they cannot know whether they are wasting scarce resources producing goods that no one wants. |
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Capitalists will inevitably attempt to sabotage socialists' successful attempts to collectivize sectors of the economy. Socialism would be possible if the world were rid of capitalists. |
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The only way socialism would be possible is if a central information agency or computer that had superhuman intelligence and processing power could incorporate all available information and knowledge, which was not likely during Mises's lifetime. |
For an economy in equilibrium (i.e. in all that economy's markets, quantity demanded equals quantity supplied and thus no shortages or surpluses), a given industry can expand only at the expense of other industries. Why?
Answer- Economic Equilibrium is a state of balance in an economy. As per elementary micro-economics, market equilibrium price is the price that is equal to the demand and supply in a particular market whereas in state of partial economic equilibrium the market ‘clears’ at the equilibrium price hence everything that is taken to market by producers is taken out of the market by consumers.
Henceforth in macroeconomics it is said that, national income is in equilibrium when aggregate demand (AD) equals aggregate supply (AS).
General equilibrium theory attempts to show how all markets move towards a coordinated equilibrium.
For example, imagine that sellers of X product are willing to sell 1000 units of X at a price of $100 per unit. If buyers are willing to buy 1000 units of X at that price, this market would be in equilibrium at the price of $100, 5 and at the quantity of 1000 units.
Figure 1.1 and 1.2 - Macro Economic Equilibrium and Micro Economic Equilibrium-
The economists further analyze that changes in the determinants of supply and demand result in a new equilibrium price and quantity. When there is a change in supply or demand, the old price will no longer be an equilibrium hence there will be a shortage or surplus, and price will subsequently adjust until there is a new equilibrium.
For example, suppose there is a sudden invasion of aggressive product Y in the market. So, there will be more people who want to buy Y at all possible prices causing demand to increase. As at the original price, there will be a shortage of Y, signaling sellers to increase the price until the quantity supplied and quantity demanded are once again equal.
Now with pretext to one industrial growth expansion basis of expanse of other industries can be explained with below mentioned example-
A famous, trendsetting Hollywood celebrity starts wearing product X, which makes them instantly the must-have accessory. This would cause the demand for this good to increase. To see the impact on equilibrium price and quantity in the market from an increase in demand, grab the demand curve Figure- 1.3 and shift it to the right to represent an increase in demand.
When both supply and demand change at the same time, the impact on equilibrium price and quantity cannot be determined for certain without knowing which changed by a greater amount. Suppose product X fall out of popularity, and therefore the demand for it decreases. At the same time, the price of product Y goes up, which leads to a decrease in supply.
On the one hand, the decrease in demand should make price decrease and quantity demanded decrease whereas the other hand, the decrease in supply should also make price __increase and quantity demanded decrease. That means we know for certain that the quantity of X. Hence when modeling changes in a graph it is possible to see changes in both equilibrium price and quantity when shifting both demand and supply depending on how much each curve shifts.