One of the specific problems socialist economies had was keeping up with capitalist countries technologically. a....

One of the specific problems socialist economies had was keeping up with capitalist countries technologically.

a. Can you think of any reason inherent in centrally planned economy that would make innovation difficult?

b. Can you think of any reason inherent in a capitalist economy that would foster innovation?

c. Joseph Schumprter, a famous Harvard economist of 1930s, predicted that as firms in capitalist societies grew in size, they would innovate less. Can you suggest what his argument might have been? d. Schumpeter’s prediction did not come true.

Modern capitalist economies have had enormous innovations, can you provide explanations as to why?

Expert Solution

(a) A centrally planned economy market is regulated by government. Government does not provide any kind of incentives to firms tor innovation. Innovation requires liberty of profit- maximization. Government advocates all the business activities in a centrally economy, so the firms do indulge in innovation.

(b) Firms are tree to innovate and make profit in a capitalist economy. Freedom to make profit provides an incentive tor new innovation. Cash prizes and patent rights are given in capitalist economy tor new innovation. This gives incentives tor firms to innovate.

(c) An economist, Joseph Schumpeter's argument regarding innovation in capitalist economy might nave been that increasing size of firms is beneficial tor firms rather than innovation. According him, innovation is not beneficial tor innovations. Firms often try to expand their business activities rather than the innovation.

(d) Modern capitalist economies had enormous innovations because it has proved a profit maximization tool, and it helps many firms to maximize their profit. All most all the firms in a capitalist economy nave departments of research and development to enlarge advanced technological innovations.

e) Joseph Schumpeter's argument did not come true, because advanced technological innovations has improved quality products and reduced the cost of production. This has helped firms to maximize their profit. Thus, his argument did not come true.

Rahul Sunny answered 7 months ago

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