Question

In: Economics

1.         It is frequently argued that although comparing different economic systems is difficult, the exercise is...

1.         It is frequently argued that although comparing different economic systems is difficult, the exercise is nevertheless useful in expanding our knowledge of basic economic processes. In what ways might such comparisons be useful?

2.         Much of the literature dealing with the classification of economic systems emphasizes the level of decision making as an important characteristic distinguishing one system from another. How do levels of decision making differ, and why is such a comparison useful?

3.         Probably the single most important characteristic by which different economic systems have been classified is property rights. Why are property rights considered so important in the classification of economic systems?

4.         Although consumer sovereignty and planners’ preferences are generally associated with market and plan, respectively, in theory there is no reason why a plan cannot take full account of consumer preferences. Comment.

5.         Although there has been considerable agreement on the relative merits of material and moral rewards, there is little agreement as to how rewards in general should be distributed to encourage maximum contribution. Comment.

6.         The concept of differences in economic systems leading to differences in outcomes is fraught with danger because all economic systems can be characterized as simply combining basic inputs (land, labor, and capital) to create outputs. Discuss.

7.         Is decision making necessarily centralized in economic systems that rely heavily on planning as a mechanism of resource allocation?

Solutions

Expert Solution

1.

The comparison can help up understand in different ways as follows:

A. It tells the degree of private property rights given to the people and private firms. It shows the openness of the economy.

B. It tells the role of the government and dominance in the market. In market based system, it is market forces that form the dominance, but socialist system, it is the state and its centralized power to control the economy.

C. It explains the scope of decentralization of power in the economy. A socialist system, shows complete centraliztion, whereas market based system shows complete decentralization of authority.

2.

Level of decision making is important. In market based economic system, the government has negligible role in making decisions to run the market, rather it is the demand and supply forces that regulate the market. In mixed system, role of decision making is distributed between government and the private parties. In socialist system, it is the state that decides with complete authority. These differences are important to understand as it helps to know the business environment to know, as well as the autonomy of the central bank in these systems.

3.

Proeprty rights are considered as most important, because it tells the attractiveness of the economic system from the point of view of firms and private players. Is an economy gives firms to their private property rights, then firms get encouragement and take risk of investments to create jobs. It flourishes the economy. Reverse happens when all property rights are within the hands of the state power.

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