Economic Development - The comparison between FREE MARKET and GOVERNMENT INTERVENTION

ECONOMIC DEVELOPMENT

(Free) Market

Govenrment

The majority of MDCs and LDCs are mixed economy.

At micro level,we need to look into MARKET FAILURE, a FREE MARKET needs GOVERNMENT INTERVENTION:- Externalities (Merit/Demerit Goods and Open Access Resources)- Public Goods- Abuse of monopoly powerAt a macro level,in a business cycle, a FREE MARKET needs GOVERNMENT INTERVENTION to impose stabilization policies, which help to achieve MACROECONOMIC OBJECTIVES:- Price Stability- Full Employment- External Balance- Price Equality (market force caused more disparity)- Economic Growth (market force - to move away from a command economy)

In a FREE MARKET, there is the need for RESOURCE ALLOCATION - by the use of the price mechanism:"Those who can pay the highest price will get the resources"- The rich will get richer (capitalist) --> Price Inequality

Economics12 Dec, 2013

With GOVERNMENT INTERVENTION, there is the need to decide on the focus on either:- Rural sector- Urban sector

(Some questions will ask for the...FOREIGN FACTORS)Integration of different sections, for example between:- Foreign Trade- Foreign Direct Investment- Foreign Aid- Foreign LoansThey may ask "to what extent...". Therefore, you should be able to compare and contrast, and casting a judgment by considering both positives and negatives.There may also be the need to know the use of:Export Promotion --> Import Substitution --> Export Promotion(Commodities) ..........(Infant Industries)..........(Manufacturing Exports)

*"GROWTH" - main focus should be on Economic GROWTH

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