SCHOOL OF SCIENCE & ENGINEERING May 2008 Graduating Class
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Le téléchargement nécessite un accès à la bibliothèque YouScribe Tout savoir sur nos offres
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Le téléchargement nécessite un accès à la bibliothèque YouScribe Tout savoir sur nos offres
- cours - matière potentielle : science
- pranav kumar kumaraswamy visakan dmitry kurochkin
- kerianne elizabeth spiess
- kyriakos vitsas anh-thu ngo vu
- ashok kumar manepalli jibin
- bachelor
TCC ECO2013 and ECO 2023Professor Sheffield2011 - 2012 ** SUPPLEMENTAL HANDOUT ** Free Markets Versus Central Planning As we’ve discussed during lecture and as you’ve read about in Chapter 1 (pages 12 – 16), every society has three core economic questions that it must answer. What goods and services to produce? How to produce these goods and services? For whom to produce these goods and services? Now, it’s not like a group of chosen people sit down with a pen and paper and write out answers to each of these questions! How you choose to organize your economic system goes a long way toward answering each of these three questions. In general, there are three different forms of economic organization: Free Market Capitalism Centrally Planned Socialism Mixed Economic System As you discovered from your reading in Chapter 1, there are no truly Free Market economies on the planet today, and there are very few Centrally Planned economies left on the planet today. Most countries have chosen to use some type of Mixed Economic System. Some countries have a mixed system with a lot of free markets and a little bit of government planning determining the answers to the WHAT, HOW and FOR WHOM questions. America is an excellent example of one such country. Other countries have chosen to use a little bit of free markets and a lot of government planning in determining the answers to the WHAT, HOW and FOR WHOM questions. China is an excellent example of one such country. Clearly, the mixed economy spectrum is quite wide! Those who believe in Free Market Capitalism have very different views from those who believe in Centrally Planned Socialism. In the section below, you will find a convenient summary of the generallyheld views on several important economic characteristics. This discussion represents a summary of information from the following sources: th Arnold, Roger A.Macroeconomicsedition (2001) by Southwestern College Publishing, 5 (ISBN 0324017456) McConnell, Campbell R. and Brue, Stanley L.Macroeconomics: Principles, Problems and th Policies, 14edition (1999) by Irwin/McGraw Hill Publishing (ISBN 0072898410)
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TCC ECO2013 and ECO 2023Professor Sheffield2011 - 2012 Views on Price Determination Free Market Capitalism: In a competitive market (many buyers and sellers are present), prices convey information regarding the relative scarcity of products. People purchase products because it is serves their own selfinterest. People supply labor services and other resources because it serves their own selfinterest. What results is competition among a large number of small buyers and sellers who act independently of one another. Thus, economic power is widely dispersed across economic participants. When the price of a product rises, people choose to purchase less of this product. When the price of a product falls, people choose to purchase more of this product. No single buyer or seller causes these price changes. It is the interactions among many buyers and sellers (in response to market events) that cause these price changes. In this form of economic organization, PRICE functions as a rationing device, determining who ends up with goods and services. Ultimately, those individuals willing and able to pay the price will end up with the goods and services. Centrally Planned Socialism: There are too many markets that are not competitive. In many situations, we will find only one big firm producing a particular good or service. In other situations, we will find only a few big firms producing a particular good or service. In these situations, the owners of these large firms will exercise their economic power at set prices at very high levels. Consumers, with essentially no economic power, can either pay this high price or go without this good or service. Due to this concentration of economic power in the hands of “big business”, the government should pass laws to prevent the prices of goods and services from getting too high. By getting involved with price determination, the government plays a role in determining who ends up with goods and services. By keeping prices low, the government believes that more people will be able to obtain goods and services. Views on Wage Determination Free Market Capitalism: In a competitive labor market (many qualified workers and many job openings are present), wages/salaries convey information regarding the relative scarcity of labor resources. Individuals supply their labor services to firms in order to earn a paycheck and use it to purchase the goods and services they desire. Business owners and managers are willing to hire workers in order to get products produced and sold, generating a stream of revenue (and hopefully profit) for the firm. When wages/salaries fall in a particular occupation, fewer people pursue careers in that area. When wages/salaries rise in a particular occupation, more people pursue careers in that area. No single worker or employer causes these wage changes. It is the interaction of the many workers and employers (in response to market events) that cause these wage/salary changes to occur. 2
TCC ECO2013 and ECO 2023Professor Sheffield2011 - 2012 Centrally Planned Socialism: There are too many labor markets that are not competitive. In some situations, we will find only one big firm that is interested in hiring a particular type of worker. In other situations, we will find only a few big firms that are interested in hiring a particular type of worker. In these situations, the owners of these large firms will exercise their economic power at set wages/salaries at very low levels. Workers, with essentially no economic power, can either work for this low wage or go without a job. Due to this concentration of economic power in the hands of “big business”, the government should pass laws to prevent wages/salaries from falling too low. Views on Private Property Free Market Capitalism: When individuals are able to own property, they are more likely to take care of the property and conserve it for the future, especially if the property has the potential to increase in value. The incentive also exists for people to use their personal property in a way that benefits others, so that they themselves benefit also. For example, let’s suppose you own two houses. For all practical purposes, you can only live in one house at a time. So you choose to rent out your second home to someone else. You benefit by getting a monthly rent check to supplement your income, and the renter benefits because s/he now has a roof to live beneath. You could always choose to let your second home just stand idle, but you would be forgoing this potential rental income! Centrally Planned Socialism: When private property exists, some people will be able to own a lot of property, others will be able to own a little property, and yet others will be unable to own any property at all. Those who own property are likely to use their property to advance their own personal interests, ignoring the wishes and needs of others. Those who are able to acquire property will also acquire political power and will be able to influence policy in their favor at the expense of others. If, however, private property is abolished and the government owns all property, it is much more likely that property will be used to benefit the many rather than just the few. Views on the Role of Government Free Market Capitalism: Government decision makers are human, so many of them are simply interested in getting elected and reelected to office. Government decision makers are likely to respond to the wishes and desires of wellorganized special interest groups (the vocal minority who vote and contribute to political campaigns) and not to the lessorganized members of the general public (the silent majority who may or may not vote and contribute to political campaigns). When government decision makers make a mistake, it may be due to a lack of information, but it’s just as likely to have been a politicallymotivated choice. 3
TCC ECO2013 and ECO 2023Professor Sheffield2011 - 2012 Centrally Planned Socialism: Government decision makers pursue and promote the best interests of society as a whole. The government is composed of people who want to do the right thing, and will usually do the right thing. If government decision makers make a mistake, it is likely because they did not have all of the information relevant to the decision being made. For Further Study To expand your knowledge on this important subject, I want you to consultThe Concise Guide to Economicsby Jim Cox. It can be accessed online at:http://conciseguidetoeconomics.com/First, I want you to visit “Section 18. Market versus Command Economy”. After reviewing this section of material, you should be able to easily answer these questions: (1) What is the most fundamental distinction between a market economy and a command economy? (2) What are the FOUR reasons why we should expect a command economy to be deficient relative to a market economy? Second, I want you to do a little bit of thinking and a little bit of research to expand your knowledge on Chapter 2 (pages 33 – 36) topics. Here we discussed the 4 basic economic roles of government. We also pointed out that in America today, there is still much debate over how much help her citizens want or need from the government. Please visit “Section 17. Market versus Government Provision of Goods”. After reviewing this section of material, you should be able to easily answer these questions: (3) How does a private business generate income (sales revenue)? (4) How does the government generate income? (5) What are the FIVE significant differences between market provision and government provision of goods and services?
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