Under socialism government may make those decisions

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Unformatted text preview: services will be produced or how they will be produced. Under som, government may make those decisions. For example, in the United States, the federal government doesn’t make decisions on how many pairs of shoes will be produced in the country, or how many cars, television sets, or computers. These decisions are made by individuals in private firms. In contrast, in North Korea today the government sets production levels for almost all products. Economists tell a story about the days of the Soviet Union when the Soviet official who was in charge of deciding what goods got produced came to the United States. When he arrived in the United States, his U.S. hosts asked him if he would like to meet anyone in particular. He told his hosts he wanted to meet his counterpart in the United States—the person who decided what goods would be produced. His hosts told him no such person existed in the United States. The Soviet official was shocked and couldn’t understand how things got done in the United States if no one was issuing economic orders. Under som, government decision makers may write an economic plan, a plan that specifies the direction economic activities are to take. For example, a plan may state that over the next five years, the nation’s economy will produce more manufactured goods (such as cars and trucks) and fewer agricultural goods (such as wheat and corn). A free enterprise economic system would have no such plan. Income Distribution Income distribution refers to how all the income earned in a country is divided among different groups of income earners. For example, the top 10 percent of income earners may earn 20 percent of the total income of the country, whereas the bottom 10 percent of income earners may earn 4 percent of the total income of the country. In a free enterprise economic system less attention is paid to the income distribution than in a sot economic system. Government decision makers under som are more likely to use government’s powers to redistribute income, usually directing it away from society’s high earners. economic plan A government program specifying economic activities, such as what goods are to be produced and what prices will be charged. income distribution The way all the income earned in a country is divided among different groups of income earners. These North Korean workers are storing maize on a cooperative farm. Who do you think determines the production levels that these workers are expected to achieve? 35 02 (030-053) EMC Chap 02 11/17/05 4:13 PM Page 36 Controlling Prices In a free enterprise economic system, prices are allowed to fluctuate—that is, to go up and down. Government does not attempt to control prices. In a sot economic system, government decision makers do control prices, although not all sot systems control prices to the same extent. For example, government decision makers may say that no one can buy or sell bread for more than $1.50 a loaf. Or they may say wage rates for unskilled labor are too low at $4 an hour and order that no one b...
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This document was uploaded on 01/16/2014.

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