Compare command and control to market based approaches, providing a couple examples of each. Why do...

Compare command and control to market based approaches, providing a couple examples of each. Why do economists tend to prefer market based approaches? Why have, historically, regulators tended to employ command and control approaches? Give an example of a situation where one approach would be preferable to another, and justify your choice.

Expert Solution

The command or control approach refers to the situation where the state interferes in the economic activity of the country through laws such as ownership and licencing. State-owned and run enterprises are also an example of this. The market-based approach means that the price and availability of goods and services will be determined by the demand and supply. The approach is of profit maximization.

The example for the command approach is state-owned enterprises like railways and also old government regulation of licencing. Whereas the example of the market-based approach is FMCG products.

Economists prefer market-based approach because it provides incentives in the market and is growth oriented.

A situation of providing telecom service in a remote rural area of India. The market-based approach would fail because it is not profitable and investment is way bigger than expected return. But it's necessary for the welfare of the people living there. The command approach works here.

Rahul Sunny answered 1 year ago

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