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Assess which type of economic system is most effective in allocating scarce resources?

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28/10/01 Essay:Assess which type of economic system is most effective in allocating scarce resources? Economic systems are organised sets of procedures used within communities or between communities to govern the production and distribution of goods and services. Economists identify three types of economic systems: traditional (customs, habits, laws, and religious beliefs control decisions), command (government regulates economic activity), and market (individuals control production and distribution resources and make decisions based on the market in which they function). A mixed economy combines elements of these systems. All economies must answer three significant questions. What goods and services should be produced, how should they be produced and who gets the goods and services that are produced. The key point is who answers these questions in a country. In a command economy they are answered by the government, which means that the government decides upon everything. ...read more.


of what should be produced in a certain period of time, in order to cover the basic needs of the people. They sometimes have to set prices to regulate and to control demand to be able to match the planned supply. However command economies (or CPEs) do not consider human behaviour in consideration of the impossibility of satisfying demand. Also , with everyone being treated equally no matter how much one is working for the plan, the people are losing the interest in considering quality. A good example for that is the production of the Trabant (Trabbi, Car) in the GDR. As said before, the market economy is the complete opposite of the command economy. It does not involve any form of planning. However there is no such thing as a pure market economy. Therefore there is no economy in the world that does not involve planning of any kind. ...read more.


It only remains to argue which way is the most efficient and the best for a country. All economic theories (and societies) have an explanation of how resources are allocated and therefore how production of goods and services are produced and consumed. A pure market economy (that does not really exist) can well claim to be the probably most efficient allocating system, however it can not claim to be an equitable or fair rationing system. Time has shown that a centrally planned or command economy usually does not succeed. A good example for that is the former Soviet Union. Therefore the conclusion to the essay question is that a mixed market economy until now is the most efficient one in allocating scarce resources. It combines the advantages of a free market coming from the market economy with the advantages of social security and justice coming from the command economy. It is hard to say how big the role of the government should be but planning should always ensure the basic life essentials. ?? ?? ?? ?? 1 1 ...read more.

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