Compare ways which resources allocated market and command
In other words supply is dictated by a governing body which tries to predict demand however this process is very difficult and it leads to heavy losses.
How are resources allocated in a market economy
Even at the peak of some of these communist economies, there were people who had better access to certain things. The profit motive also encourages producers to be more innovative, and resource allocation is directed towards better products and services. In both of these systmes there are different methods of resource allocation used. Opportunity cost and the Production Possibilities Curve Video transcript - [Instructor] In this video we're gonna talk about different ways of structuring an economy. They respond to the consumers who are allowed to by anything that is sold by the producers. Taking these inputs, the producers make decisions regarding the allocation of resources. If I might not be interested in getting a truck but I really need to get a new car for my family so I can drive them around and take vacations and things, and so let's say you wanna get a car too but the market will dictate who gets it. And in a command economy, the government will often own the factories and the farms, so the factors of production. At the Equillibrium Quantity? The Invisible Hand: Definition Adam Smith's "invisible hand" idea implied that competitive markets send resources to their highest valued use in society Term Is the Competitive Market Efficient?
Wages are determined by the planners and so are the prices of the goods produced. The government has a very restricted part to play.
Prices and the self-interest of people and businesses therefore act as a guide to the decisions that have to be taken.
The function of an economic system is to resolve the basic economic problem — scarcity which means that the resources are limited but wants are infinite.
Many countries or economic systems have attempted to solve the resource allocation problem by reaching a compromise between the free market and planned economy systems.
Similarly, if there's a ton of people who are willing to pay the price of this truck, they might raise the price on the truck or produce more of it.
There are economies that use a mixture of these systems in particular the planned and free market system also known as the mixed economy in which some of the decisions resource allocation are done by the government and other by the public.
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