Question

When the equilibrium price is 30 and equilibrium quantity is 2000. Intercept of Supply curve in the p axis is 10 and intercept of Demand curve in the p axis is 60. d) Explain why does the equilibrium quantity maximize the total surplus, com- bined the graph and formula. e) Explain the free market system versus government intervention. f) Why do we need consist on market system. rather than the central planning economy, although the experiences prove that the market system has some shortcomings.

Answer 1

e) In the free market system, there is no restriction which says who will buy which goods and services. People are free to determine on their own as long as they have the purchasing blower to buy them. This kind of economy has no government control and economic purchasing takes place purely based in the price of the goods and services and on the purchasing capabilities of the consumers.

Government intervention is the policy of the government which affects the economic policies of the market economy.

f) Market economy works with the notion of demand and supply in the economy. The consumer's choices are being predicted by the demand of the consumers. But in central economy as everything is being considered by the central system, it is hard to determine what consumers want it prefer.

Market economy gives rise to competition. So, the goods produced will be more efficiently produced and the quality of the goods have to good to sustain in the competitive market economy. In central economy, there is no competition as everything is planned. So the goods might not be produced in an efficient manner. Goods are usually lower priced in the market economy than in the centrally planned ones as there in the latter there is no competition.

d) The equilibrium quantity maximises the total surplus as there is no point other than the equilibrium point which will be as efficient for both the producers and consumers as the equilibrium point.