Scarcity Revisited Tradition, command, market

1
Scarcity RevisitedTradition, command, market

• Without scarcity, there would be no economic
  problem no need for prices.

2

• How is scarcity dealt with?

3
An economic system

• Every society needs to develop one. Its a set of
  institutional arrangements and a coordinating
  mechanism to respond to the economizing problem
  (scarcity).
• Economic systems differ as to (1) who owns the
  factors of production and (2) the method used to
  motivate, coordinate, and direct economic
  activity.

4
What will be produced?

• In a market system, the goods and services
  produced at a continuing profit will be produced,
  and those produced at a continuing loss will not.
• TRgtTCexpanded production movement of resources
  toward that industry.
• Consumer sovereignty is crucial in determining
  the types and quantities of goods produced.
• Wants are registered through dollar votes in
  the market. Every dollar spent on a specific
  product is a vote toward the popularity of that
  product.

5
How will goods services be produced?

• They will be produced in combinations and ways
  that minimize the cost per unit of output.
• Maximizing efficiency per unit of output helps to
  maximize profits, thus eliminating high-cost
  producers. (see chart on p. 35)
• The most efficient technique depends on the
  available technology and the prices of needed
  resources.

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For whom?

• Products are distributed to consumers based on
  their ability and willingness to pay the existing
  market price.
• Consumers must have sufficient income and the
  desire to purchase certain goods.

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Tradition

• Depending on the society, the government, and
  many other variables, scarcity and opportunity
  cost are dealt with in different ways.
• In some instances, the tradition of the society
  or culture is how scarcity is dealt with. A
  certain amount of a certain product has always
  been produced and will continue to be produced.

8
The Command System

• Connected to socialism or communism. Govt owns
  most property resources and economic decision
  making occurs through a central economic plan.
• Nearly all major decisions are made by central
  planning board which is appointed by the govt.
• Central planning board determines production
  goals for each enterprise and specifies the amt.
  of resources to be allocated so that those goals
  can be reached.
• Division of output between capital and consumer
  goods is centrally decided, capital goods are
  allocated among industries on the basis of the
  central planning boards long-term priorities.

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Command (contd)

• But, even the most powerful command economy, the
  Soviet Union, allowed for some private ownership
  and combination of markets before it fell in
  1992.
• China has greatly reduced the reliance on central
  planning. Although govt ownership of resources
  and capital in China is still extensive, they
  have relied on free markets to organize and
  coordinate its economy.
• Cuba and North Korea are the 2 remaining
  prominent centrally planned economies.

10
The Market System

• AKA capitalism.
• Characterized by private ownership of resources
  and the use of markets and prices to coordinate
  and direct economic activity.
• Participants in this economy act in their own
  self-interest.
• Allows for economic decisions to be made in the
  markets (places where buyers and sellers come
  together).

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Market (contd)

• Goods and services are produced and resources are
  supplied by whoever is willing and able to do so.
• Competition is the result. It occurs between
  independently acting buyers and sellers of each
  product and resource. Competition diffuses
  economic power and limits the actions of any
  single seller or buyer.
• In pure capitalismor laissez-faire
  capitalismgovts role would be limited to
  protecting private property and establishing and
  environment appropriate to the operation of the
  market system.