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The division of labour.

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Introduction

Economic system is "a system for coordinating the actions of all the people in a society in order to decide what to produce, how to produce and for whom to produce" (Waldron, 2003, P1). Thus, to analyse the effectiveness of economic system is actually to study the its resources efficiency, which includes allocative efficiency, decision about what to produce; and productive efficiency, decision about how to produce; as well as its equity, for whom is to produce. Before explaining how "division of labour" and "comparative advantages" works on economy efficiency, it's necessary to have a look into how it affected to Neo and Angie's dinner last weekend. On last Saturday's together-dinner, Angie and Neo were two selected cooks to make fried beefsteak and vegetable salads. Neo was good at cooking that can fry approximate 8 pieces of beefsteak or made 16 dishes of salads in an hour while Angie can only offer 4 dishes of fried beefsteak or 10 dishes of salads in one hour's time. (See the form below) Fried Beefsteak (pieces) Vegetable Salads (dishes) Neo 8 16 Angie 4 12 As it is shown in the table, Neo had absolute advantage in both frying beefsteak and making salads. However, Angie should be considered to have comparative advantage in making salads since her opportunity cost of making one dish of salads was frying 1/3 piece of beefsteak. ...read more.

Middle

As Chairman Mao claimed in his speech on the third 5-year plan of economy, the division of labour at that time was only centred on the goal of maximize the steel output: "Our former method of planning was basically inherited from the Soviet Union, which is to set up the output of steel first, then use this number to calculate the necessary coal, electricity and transportation resource, and at last we calculate how many labour are required and how much should be spent on the welfare system. The output of steel determines all other things, (if) the output decrease, all other factors decrease accordingly."(Mao, 1964, P12) The Chinese Government was trying to develop the industry as fast as possible at that moment. Therefore, the division of labour was running far away from following the comparative advantage but the requirement for steal-making industry. Ant this finally led to the allocative inefficiency. On the other side where Adam Smith's "Invisible Hand" is given full scope to, the free-market economic system tend to earn allocative efficiency more easily. Since "Specialisation based on comparative advantage is the basis for economic exchange"(Frank & Bernanke, 2001, P68) and the price mechanism which leads to allocative efficiency will only work on the basis of free economic exchange(trade), the free-market system in which the division of labour is generally following the comparative advantage has the superiority in achieving allocative efficiency. ...read more.

Conclusion

In principle, a central-command system has the advantage in increasing the equity since its special controllable structure. However, the lower equity is always found in practice. That's because when the specialisation doesn't follow individuals' comparative advantage, the wills of the officials with the power will tend to lead to the corruption. For example, produce of goods such as luxuries which will benefit the hierarch may be encourage artificially and finally led to economic inequity. To conclude, the division of labour determines both the allocative efficiency and productive efficiency. And the resource efficiency of an economic system will increase only when the division of labour is following the comparative advantage. Specialisation under comparative advantage does not necessarily decrease the economic equity while other methods of specialisation may probably do so. Therefore, we say that division of labour with comparative advantage determines the raise of an economic system's effectiveness. Reference Waldron, H. (2003) Economic System Hand Out Carven, J. (1990) Introduction of Economics, 2nd ed. Oxford, Basil Blackwell Ltd. Zedong, M. (1964) Speech of the third five-year plan, China, History Publishing Company. Frank, R. & Bernanke, B. (2001) Principles of Economics, New York, McGraw-Hill Higher Education Financial Services and the Treasury Hong Kong (2003) Welcome Message www.info.gov.hk Statistics Bureau of Guangdong Province (1998) Guangdong Statistical Year Book http://www.gdstats.gov.cn Hong Kong Trade Development Council (2003) Competitiveness of the HK+PRD Region and A New Momentum of Growth www.tdctrade.com. ...read more.

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