Question

1- Investment: Why is there less investment in a participatory than in a capitalist economy? Relate your answer to the difference between who owns capital and who gets profits.

2- China’s Economic Growth: According to the article “Understanding China’s Growth: Past, Present, and Future,” what is the main difference between the types (sources) of economic growht between the pre-1978 and post-1978 periods?

3- Price liberalization: Describe the process of price liberalization in transition countries. What were the consequences?

Answer 1

Answer – a

In participatory economy there no private production and there is no personal profits, production and distribution done by government.so, Government is also responsible for investments. Government invest in the way where there is maximum social surplus. To maximize social government not only have invest but also have to decided where. So there is only one investor in participatory economy and he (government) is not interest in profits. So invest become very limited/less.

            On other hand capitalist economy individual can have zero to unlimited profits, so this profits promote them to invest more.

Answer – b

China pre 1978 economy was based on heavy industrialization in the country. But after 1978, major contribution in china growth in high growth in productivity and high investment in human capital.

Answer – c

Price liberalization - To allow prices to move according to market forces (its demand and supply). Developing countries are liberalizing there economy slowly.

Which sector of economy has become developed, and there are lots of producer in that sector and also can compete with internationally, country make price liberalization in that sector.          

Price liberalization can cause many problem to developing countries like, in developing country firm are monopoly or monopolistic competition, so they will try to gain maximum profit, in profit maximization there will be loss of consumer surplus and loss of total social welfare.