ECON102-Lecture%204-Market%20and%20Government%20Failures

ECON102-Lecture%204-Market%20and%20Government%20Failures -...

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Unformatted text preview: Quiz #2 In tutorials on the week of June 8 th . Materials from the notes on Lectures 3 and 4. 1 Market failures and government failures Lecture 4 Recap from last time Looked at how the economic principles work in economic systems Market economy -> voluntary exchanges, through markets Command economy -> central authorities mobilize resources, through the central plan 3 Recap Command system Central control Social ethic Planning mechanism State ownership State monopoly Market system Consumer sovereignty Self-interest Price mechanism Private enterprise Competition 4 Recap The market and command economies solve the problem of scarcity in different ways : In the market system, why would mayonnaise be made? Because producers would gather that people are willing to pay certain amount of money for mayonnaise -> if the costs of producing mayonnaise are lower than this amount of money (that people are willing to pay), 5 Recap Why would mayonnaise be made in the command economy? Because the Central Planner would put it on the list of things that are to be produced in the country in that year. So, if Mr. Planner forgot to put mayonnaise on that list or simply did not consider it necessary for people in that country to have it mayonnaise will not be made. No matter how much people are willing to pay for mayonnaise in this country, it is not possible to buy it, because it does not exist. 6 Recap In the above example, substitute mayonnaise with any other commodity (jeans, fabrics, make up, interior dcor items, kitchen gadgets, gardening tools, medical equipment, books ) and you get a general picture of how market and command economies function. Ask yourself: if you were the person who makes the list of what things people in a country would like to see produced, what items would you put on the list and how would you decide what to choose? 7 Today If market economy and command economy always solved the problem of scarcity to everyones satisfaction, there would not be much of a problem to talk about But both market and command economies have their problems , aka failures -> The parts of the scarcity problem are not solved by either of the systems, or solved but not in the satisfactory way 8 Problems within the command economies Why governments fail when they regulate economies?...
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ECON102-Lecture%204-Market%20and%20Government%20Failures -...

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