McConnell_Brue_Chapter02

Secondarily in economic systems an error in judgment

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: production of capital goods will become even more pronounced as it translates into a chain reaction in the production of consumer goods and services. Stated differently, the outputs of one industry become the inputs of others, and an error in one will become magnified through the chain reaction over time. In summary, poor coordination eventually equates to inefficiency. 13 Chapter 2: The Market System and The Circular Flow Slide 33 The Incentive Problem in Command Systems Command systems lack incentives for changes to occur. Production managers are rewarded for meeting quotas, not satisfying needs and wants. When central planners misjudged the necessary amount of outputs of goods and services, shortages of some goods existed and surpluses of others. Consequently, so long as production managers meet quotas, they remain in good stead and any changes in incentive must be mandated by a planning committee. However, production managers were rewarded for meeting assigned targets, as opposed to meeting demand and thus they had no incentive to adjust production in response to shortages and surpluses. Chapter 2 We know of several problems command systems encountered f...
View Full Document

Ask a homework question - tutors are online