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Three Basic Economic Questions
The limited availability of resources for satisfying the unlimited needs of the population is the basic economic problem of our time. It is referred to as scarcity (Josten and Truger 8). Scare goods and services are capable of controlling the price at the market. The price is an indicator of how scarce this or that product is: more expensive goods are considered to be scarcer than cheaper products. Since all societies demonstrate an interest in scarce products, the economy of every country faces the three basic questions:
- What goods and services are to be produced?
- How are they going to be produced?
- Who is the target consumer? (Josten and Truger 9).
No matter how advanced a country might be, it cannot afford to produce everything that its citizens desire. Thus, there arises a problem of deciding what products must be produced and in what quantities they are required. The government has to assess how goods and services will be distributed among their potential users and which of them are to be given preference (e.g. what is more effective: to produce food and clothes to improve the living standard or to invest in the military industry for defense purposes) (Josten and Truger 9).
Since resources are insufficient, it has to be considered in what way they must be used to give the best possible outcome. However, even though we must get the maximum benefit of the resources at hand, a lot of additional aspects should be taken into account. For instance, there exist certain moral objections to the issues like slavery or medical objections to such a profitable branch of science as genetic modification of food (Josten and Truger 10).
It is impossible to satisfy all the people equally, that is why the government must decide whose needs will be addressed to what extent. It leads to unequal distribution of goods in society (Josten and Trigger 11).
Centralized (Command) Economic System
The most distinguishing feature of the command system is the control exercised by a centralized power (Alberts and Hayes 6) This type is favorable when the country possesses huge amounts of natural resources and someone is needed to perform regulations. With the intelligent rule, potential advantages include the capability of creating a continuous supply of resources, reasonable pricing, elimination of the unemployment problem, etc. However, this type of economy generally creates unease among the population (Abraha 54).
Market (Price) Economic System
A market economic system resembles a free market: the government has no control over the natural resources or goods. Thus, the demands, offers, and supplies are controlled by individuals running huge enterprises. There is no true price economy in the world today. The government still attempts to regulate trade, businesses, and social programs. Still, the greatest advantage of this type is the separation of the state and the economy. It prevents governments from becoming too oppressive (Grimaud, Lafforgue, and Magne 24).
Mixed (Dual) Economic System
In the most widely-spread type of mixed economy, the market is not under the total control of the government, but for several major sectors (education, transportation system, etc.) excluding resources (Nelson 13). A mixed economy can lead to prosperity and failure with an equal probability depending on how successfully control is performed. In some cases, the government gradually gains power, becoming less flexible and accessible. This can result in the transition to a command economy (Dosi 123).
Abraha, Desalegn. “Command Economy as Failed Model of Development Lessons not Yet Learned: The Case of Eritrea.” Journal of Management Policy and Practice 11.5 (2010): 49-68. Web.
Alberts, David S., and Richard E. Hayes. Understanding Command and Control. Assistant Secretary of Defense (C3i/Command Control Research Program) Washington DC, 2006. Web.
Dosi, Giovanni. “Economic Theory to the Understanding of a Knowledge-Based Economy.” The Economic Impact of Knowledge (2009): 123. Print.
Grimaud, Andra, Gilles Lafforgue, and Bertrand Magne. Economic Growth and Climate Change in a Decentralized Economy: A Theoretical and Empirical Approach. No. 07.04. 225. LERNA, University of Toulouse, 2007. Web.
Josten, Stefan Dietrich, and Achim Truger. Inequality, Politics, and Economic Growth. Three Critical Questions on Politico-Economic Models on Growth and Distribution. No. 3. 2003. Print.
Nelson, Richard R. “Capitalism as a Mixed Economic System.” The Oxford Handbook of Capitalism (2012). Web.