Chapter 2, Problem 1DQ

To determine

The market system and command economy that cope with economic scarcity.

Explanation of Solution

The market system is a system, which allows private ownership of the capital and its resources. The owners of the resources and the capital decide the economic scarcity questions such as what to produce, how to produce and to whom to produce. The economic activity in the market system works on the basis of market prices, which are decided by the interaction of the demand and supply in the market. The main objective of the market economy is profit maximization. The self interest based on the profit decides the level of output which is produced and the level of resources which is supplied in the economy.

The command economy is a system in which, there is only public ownership. The resources are owned and operated by the public authority and basically government. There is no profit motive in the economy. The decisions such as what to produce and how to produce etc are taken on the basis of priorities that are given by the government authorized planning commission. The decision for allocating capital, labor and other such decisions are taken based on the priorities of the board.

Economics Concept Introduction

Concept introduction:

Market System: The market system is a system in which, the economy is operated by the private owners of a capital and the economic decisions are taken by the capital owners.

Command Economy: The command economy is a system in which, the economy is controlled by public planning and there is public ownership in the economy.