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The mixed market economy and the allocation of resources.

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Introduction

Anna Markmann 26.10.03 The mixed market economy and the allocation of resources Essay Outline A Introduction: 10% * Economics: Basics - problems, consequences * Short definition of a planned/command economy * Characteristics of a planned/command economy: No class conflict (marx) public ownership, planned production, scarce resources allocated by the government no private property, no self interest in profit, no competition, fixed supply, no choice B Main Body: 75% I Positive features (Theory) (Webnote #113, 109:) further social goals=individual goals/ "state looks after you" * Equal (re-)distribution of wealth and income / employment * Current spending: social welfare, government employees, defence, education, health, pensions, debt repayments * Capital spending: Infrastructure: airports, housing, road&rail, schools, telecommunications * Provision of essential services, law and order, cultural affairs, international relations, social issues = no abuse of monopoly powers * (quick) Economic Growth (from a poor background) * Trade * FOP mobility because of government's help + "effective" use of FOPs = no unemployment, no inflation * stable prices, advertising and currency: government determines price, not determine by constantly changing/insecure market powers; government controls incentives and determines their use = no lack of public/essential goods & equally advantageous for all people II Negative features (Reality)

Middle

It contains the features of the market economy and the command economy. Resources are allocated by markets which set prices by a mechanism, called "the invisible hand" by the first economist Adam Smith (1723 - 1790), and government actions. In the market economy everything is based upon the idea of self interest in private property and strong motivation for private profit. Moreover there exists competition, and one has freedom of choice and enterprise. The role of government is limited to the price determination by supply and demand , which my point proves: The price mechanism is a process or a system of determination of prices and resource allocation. It operates in a free market only by the interaction of supply (blue line) and demand (red line): diagram 12:market price quantity These are the driving forces of the market economy and they are constantly changing because of changes in prices of substitute and complementary goods, incomes, tastes, advertising, technology, weather, etc. The law of supply is that, while other things remaining the same, the quantity supplied will increase as the price increases. The actual amount supplied will be finally determined, by the equilibrium, which depends on the amount demanded as well as what suppliers are willing to produce.

Conclusion

all people gets absolutely the same amount of goods and services and unemployment does not exists . On the contrary, in the market economy the decision what, from whom and how much to choose belongs to the consumer, that is why the market is able to responds more quickly to new conditions, and the price system improves allocation effectiveness and guides to economic growth. It operates off of profit and loss. Resources follow profits and profits attract competition which leads to more advantages for both sides5. Governments try address then this process using regulations, taxes, and spending. Many resource allocation decisions are best made through markets, but some resource allocation decisions are better addressed using the "dictatorial" powers of government, because sometimes free markets fail to allocate adequately. The mixed market is, to sum up, definitely a question of ratio between command features and market features. Although it is not perfect, it contains more important advantages for consumers and sellers. As well as it uses resources in a way that generates the highest value of output as determent in the market by consumer, called economic efficiency, because it uses the main advantages from allocations of non-market and market mechanisms. 1 Definition by Alan Glanville "Economics from a global perspective" p. 625 2 Webnote #116 from economics.isdedu.de 3 Webnote #116 from economics.isdedu.de 4 Source: http://www.bized.ac.uk/stafsup/options/notes/econ2_c.htm 5 Webnote #101 from economics.isdedu.de 1

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