Date Prepared: Monday, August 27th, 2001
Course Name: Macroeconomics 201-10N
#Course Credit:3.0
Name of Instructor: Michael Heslop
Office: CS Bldg-Rm-216C
Tele#: (703)-323-3254
E-Mail Address: MHeslop@nvcc.edu
Mailbox: CS 232
Semester/Year: Fall 2001
Classroom/Time:T/TH:12:30PM-1:45PM(RM-CS-208)
The
following are some of the advantages (or Benefits) and disadvantages or (Costs)
of the Competitive Market Mechanism or the Price Mechanism and the Central
Planning or Command Mechanism. Students are fully encouraged to challenge and
debate the validity of these stated advantages and disadvantages of both
mechanisms used to allocate resources in capitalist and socialist economies.The
challenge of all these advantages/disadvantages are intended for open class
discussion and or presentations.
(a)Fosters competition among market participants
(buyers/sellers) which encourages these market players to constantly weigh
their costs/benefits
(b)Fosters competitive prices for goods/services
produced/exchanged in markets. Competitive prices are determined by the
interaction of the market forces of supply/demand. These prices provide
incentives for buyers and sellers in competitive markets regarding buying/selling
decisions (See Laws of demand/supply). Indeed Competition is protected by LAW in the
US market economy(See the Anti-Trust Laws)
(c)Competitive markets( or Price mechanism) engender
efficiency in the production/distribution of goods and services but discourage
equity in the distribution of income
(d)Competitive markets generate the production of a wide
range of goods/services which provide market participants with a wide choice in
the markets for goods/services
(e)Competitive markets encourage the participation of a
large number of people(buyers/sellers) in their economic decision making
(f)Competitive markets foster voluntary exchange of goods
and services in Input/Output markets
(g)Competitive markets are flexible and are able to adopt
to match changes in demand/supply in peoples needs/wants
(h) Competitive markets facilitate the free choice of
producers/consumers to produce/consume goods/services for which there is a
demand/supply
(i)Market economies foster the exploitation of
specialization in areas such as wholesaling, retailing, transport, finance,
banking, insurance and other service areas
(j)Market economies encourage individuals to freely decide
to work in their best interests
(k)Market economies also encourage individuals to develop
new ideas and technologies via its reward system of the Carrot and Stick. This
process engenders greater output of goods/services in all markets
(i)Competitive Markets foster a better incentive systems
for economic agents (people) in market economies
The following are some of the Disadvantages or (Costs)
of a Market or Capitalist economy (Competitive markets):
Some Disadvantages or Costs of Market Economies
(a)The competition engendered by competitive markets is
heavily weighed against weaker(Poorer) buyers/sellers in these markets and
favors the stronger(Richer) buyers/sellers
(b)Competitive market prices are no guarantee that the poor
in market economies will be able to purchase the basic necessities of life such as foods, clothing, housing,
health care, education, heat among others
(c)Competitive markets are more concerned with Efficiency(ie
increasing the size of the pie(GDP) and less concerned with the distribution of
the pie(GDP) ie Equity
(d)Competitive markets produce a wide range of
goods/services but because of the inequities that they foster significant
numbers of potential participants are
excluded and those included have to settle with a limited choice of
goods/services
(e) Profit is the central driving force of all competitive
markets in market economies hence those who cannot afford these market prices
will be denied the scarce resources in these markets(housing, telephone service,
health care,
foods etc)-MONEY
is POWER in Market
economies.
(f)Competitive markets exploit laborers/poorer groups in
market economies
(g)There is no guarantee that
individuals(investors/laborers) who work hard will succeed in business or
careers/jobs. Those who fail may suffer very harsh consequences given the Carrot and Stick reward
system in market economies.
(h)Market economies are subjected to fluctuations(ups and
downs) of the capitalist business cycles. The downs of these markets hurt
everybody and the ups preserve socio-economic inequities
(i)Competitive markets promote selfishness/individualism.
The individual excellence and stardom are frequently promoted as inimical to
the group/collective excellence/stardom.
(j)Pollution, child labor, diseases and other social ills
are in important ways the end result of
selfishness, profit motive and avarice inherent in
competitive market
economies
(k) Market economies foster unequal economic power between
those who own major capital resources(factories, land, sports clubs, stocks,
bonds and other assets) and those who own virtually nothing but the capacity to
work. The reason for this state of affairs is that in market economies the bulk
of a nation’s wealth is owned by a few people.
Some Advantages or Benefits of the Central Planning or
Command or the Socialist Mechanism
(1) Central
Planning focuses/coordinates the comprehensive social, cultural, economic needs
for society’s development
(2)The profit motive that drives economic activities in
market economies is not central in the allocation of resources in centrally
planned economies. Hence central planning avails resources(goods/services) not
on the basis of prices(money power) but on the basis of human needs(Example if
nation’s need is food/housing central planners will mobilize resources to
produce food/housing)-See stabilized/controlled rents/other prices in housing, foods,
health care, transport markets for decades in former command economies
(3)Central
Planning tends to focus more on Equity(ie Sharing the pie/GDP) and less
on Efficiency(ie
Producing the pie(GDP) at minimum
cost).Example of milk production in Cuba
(4)Central Planners promote the interests and importance of
groups and collectives in society over those of individuals
(5)Centrally Planned economies or “Command Economies” are
not subject to the ups and downs of the business cycles in market economies
because the central plan coordinates the whole economy
(6)Centrally planned economies foster economic power for
the citizens in a particular country because the majority of the wealth
(factories, land, sports clubs, stocks, bonds and other assets) is collectively
owned by the people at various levels of society(Federal, State, Local etc).
The reason for this state of affairs is that in centrally planned economies the
bulk of a nation’s wealth is socially owned by all the people
Some Disadvantages or Costs of Central Planning or the
Command or Socialist Mechanism:
(1)Central Planning mechanism fosters disincentives for
incentives/creativity/innovation partly/largely because of social property
–Alienation?
(2) Individuals have fewer incentives to work and invest in
command economies than they do in market economies
(3)Central Planning promotes more heavy industrialization
than it does consumer goods/services
(4)Competition is not encouraged between plants/enterprises
in centrally planned economies
(5)Red tape and state bureaucracy are inherent in
day-to-day economic/other decision making in centrally planned economies
(6)Centrally planned economies are rigid and therefore
not highly responsive to changes in the
economic environment of market participants
compared to the flexibility in market economies
(7)Centrally planned economies have probably not done a
better job in environmental protection compared with their competitors in
market economies-See case of industrial pollution in China, Poland, former USSR
(8)Centrally Planned economies do not foster the
exploitation of specialization in areas
such as wholesaling, retailing, transport,finance, banking, insurance and other
service areas
(9)Centrally Planned economies do not foster a sound and
competitive incentives system for the economic agents(people) who reside in
socialist or command economies
Conclusion: Both Market and Centrally planned economies have advantages or
benefits and disadvantages or costs that are inherent to their respective economic
systems.