Basic Economic Problem

Nota:

• Pure market systems are free of government intervention. Price mechanism is how the three questions are answered which makes the consumer soveriegn.  Price acts as a signal, rationing device and incentive and can transfer preference. Firms respond to increased demands to achieve profits. The invisible hand. Assumption is consumers aim to maximise utility

Nota:

• 100% government influence and the 3 questions are attempted to be answered by them. Failed experiments in Soviet Union and China - Communists. No consumer or producer soveriegnity. Government decides what, how and for whom the produce goes to. Profit is not an objective. Factories get production targets.

1. Advantages

   Nota:

   • From each according to ability, to each according to need. Equality No profit so not exploitation
2. Disadvantages

   Nota:

   • Bureaucratic Slow decisions Unequal Government does not/cannot know what everyone needs Laziness and low productivity as no profit incentive

Nota:

• Blend of market and planned economies. Quantity varies massively. Most ecnonomies are mixed. Most efficient as benefits of both government intervention and market forces.