...questions that all economies are faced by are what to produce, how to produce and for whom to produce for given a limited amount of resources. The basic economic problem faced by all economies is scarcity of resources. McConnell, Brue simply defines scarcity as the shortage of resources within an economy. In a Planned economy the government answers all the three questions what to produce, how to produce and for whom to produce. what to produce is the first question to b addressed. The government conducts surveys and questioners to find what the consumers want before producing them. The decision on whether to start producing capital or consumer goods rests with the government. The government mass produces because they want to cater for almost everyone and they want the products to be fairly cheap they choose a production method that is least most costly. The last question is for whom to produce. The government desires that everyone gets an equal amount of the products besides social class or any form of discretion. In a Free market economy the questions what to produce, how to produce and for whom to produce maybe answered by individuals who own the land and capital. The market forces, also referred to as the way that the behavior of buyers and sellers affects the levels of prices and wages, without any influence from the government, determine what to produce. the producers a commodity that the consumers are willing to buy the most. In this economy we can say there is...
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...Explain how a free market economy solves the 3 basic economic problems Free market economy is a system where every individual can function and operate free as a consumer or producer. The free market economy can be used to solve the 3 basic economic problems which is what to produce?, how to produce?, and for whom to produce. What to produce depends on three factors which is profit motive, price system and consumer sovereignty. Competition among producers will force the producer to come up with newer and more innovative ideas. Price mechanism will help to relocate resources efficiently whereby goods and services will be produce to satisfy unlimited human wants. Price | Demand(D) | Supply(S) | 1 | 10 | 2 | 2 | 8 | 4 | 3 | 6 | 6 | 4 | 4 | 8 | 5 | 2 | 10 | Equilibrium point Equilibrium point Price Mechanism diagram How to produce refers to the method of production which is using a cheaper method, using a new method of production by using high technology and labour intensive or capital intensive. Competition between producers improves efficiency and producer will try to cut down cost to get higher profit. For whom to produce is the third economic decision as towho will be receiving goods and services in the free market economy system is answered through the price system is answered through the price system. Goods and services are obtained by anyone who can afford them. Goods and services are distributed among the residents of the...
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...GDP per capita (in 1990 Geary-Khamis dollars) (data range 1950-2003) Since 1991, the Indian economy has pursued free market liberalisation, greater openness in trade and increase investment in infrastructure. This helped the Indian economy to achieve a rapid rate of economic growth and economic development. However, the economy still faces various problems and challenges. 1. Inflation Fuelled by rising wages, property prices and food prices inflation in India is an increasing problem. Inflation is currently between 8-10%. This inflation has been a problem despite periods of economic slowdown. For example in late 2013, Indian inflation reached 11%, despite growth falling to 4.8%. This suggests that inflation is not just due to excess demand, but is also related to cost push inflationary factors. For example, supply constraints in agriculture have caused rising food prices. This causes inflation and is also a major factor reducing living standards of the poor who are sensitive to food prices. The Central Bank of India have made reducing inflation a top priority and have been willing to raise interest rates, but cost push inflation is more difficult to solve and it may cause a fall in growth as they try to reduce inflation. 2. Poor educational standards Although India has benefited from a high % of English speakers. (important for call centre industry) there is still high levels of illiteracy amongst the population. It is worse in rural areas and amongst women. Over 50% of Indian...
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...its own logic following the law of supply and demand, Friedman contends, it will provide the freedom of choice to individuals that can counteract the possible threat of coercive power. What Friedman does not address, however, is the possibility that an authoritarian government can wield its absolute power in both the economic and the political spheres, promoting capitalism in an international market while curbing democracy. The freedom to make decisions as producers and consumes or as workers and employers can indeed coexist with, and oftentimes overshadows, the lack of choice as a citizen who is formally entitled to participate in politics. In fact, the advance in material life made possible by a more efficient market system obscures the problem of...
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...PROBLEM SET 6, ECON 311 ROLAND EISENHUTH Problem 1. There are two consumers, A and B, and two periods. A has a monetary endowment of mA = (mA , mA ) = (2, 4) in the two periods, and B has a monetary endowment of mB = (mB , mB ) = (4, 2) 1 2 1 2 in the two periods. Both consumers consume a consumption good in period 1, x1 , and period 2, x2 and have identical preferences, represented by the utility function, u(x1 , x2 ) = x1 x2 . The two consumers can borrow and lend money to one another, at interest rate, r ≥ 0. (a) Draw the Edgeworth Box and identify all Pareto efficient allocations. (b) Identify all allocations which are at least as good as the initial endowment for both consumers. (c) Determine the competitive equilibrium interest rate, r. (d) Redo parts (a)-(c) with mB = (4, 3). Problem 2. There are two goods, x1 and x2 , and two consumers, A and B. For each of the following economies, determine the competitive equilibrium prices and allocations. (a) uA (xA , xA ) = xA + xA , uB (xB , xB ) = min{xB , xB }, wA = (1, 2), wB = (3, 2). 1 2 1 2 1 2 1 2 (b) uA (xA , xA ) = xA + xA , uB (xB , xB ) = xB xB , wA = (0, 2), wB = (2, 1). 1 2 1 2 1 2 1 2 (c) uA (xA , xA ) = min{xA , xA }, uB (xB , xB ) = xB , wA = (2, 2), wB = (1, 1). 1 2 1 2 1 2 1 (d) uA (xA , xA ) = xA , uA (xB , xB ) = xB , wA = (1, 1), wB = (1, 1). 1 2 1 1 2 2 1...
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...Tourism Impact on Economy | Table of Contents 1. Abstract------------------------------------------------------------------------------pg. 3 2. Introduction------------------------------------------------------------------------pg. 3- 4 3. Methods------------------------------------------------------------------------------pg. 4- 6 4. Results--------------------------------------------------------------------------------pg. 6- 13 5. Discussions--------------------------------------------------------------------------pg. 13- 14 6. Limitations--------------------------------------------------------------------------pg.14 7. Conclusion--------------------------------------------------------------------------pg. 14- 15 8. References--------------------------------------------------------------------------pg. 16-17 9. Appendix----------------------------------------------------------------------------pg. 18 * 1) Abstract The purpose of this report is to examine the effect that tourism has on the economy, including its’ pros and cons. Furthermore, we also addressed one of the major concerns of the tourism industry, the sustainability of tourism, which affects an economy’s growth and planning. We utilized multiple methods in order to research this topic. We first found and read an array of key journal articles that addressed the economic effects of tourism that is found from different websites and...
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...experienced a process of economic development and international trade improvement. In the early 1980s, China had tried to take several steps to end its economic isolation condition. After that, accompanying with the accession to WTO, China had received a new tide of development no matter in the field of economy or world trade. It has no doubt that China’s accession into WTO would bring about tremendous changes in China’s economic performance. Known as “World Trade Organization”, WTO is one of the most important international economic organizations and also a platform for ideas’ negotiation among different countries. Currently WTO has 159 members and is regarded as the "Economic United Nations”. China has joined the World Trade Organization as the 143rd member of it. From then on, China has made a significant economic improvement in foreign and international trade area, whereas, it also has brought some problems underlying the surface economy boom. And as some experts’ sayings, the disadvantages are far more than the advantages that WTO has brought along these 12 years’ development based on the analysis on the current economic environment, which has also been a challenge to China’s economy and future development from my point of view. The benefits that WTO has brought into China As some experts’ saying, China’s accession would definitely have a tremendous impact on the economic environment as well as international trade because China is a big country in the world. Firstly, it had...
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...budget as well as the labor market, national ownership, and many other areas of government interventions into the economy. Nature of Economic Policy The ideal economic policy, both for today and tomorrow, is very simple. Government should protect and defend against domestic and foreign aggression the lives and property of the persons under its jurisdiction, settle disputes that arise, and leave the people otherwise free to pursue their various goals and ends in life. This is a radical idea in our interventionist age. Governments today are often asked to lower the prices of others, to fix wages, to help some businesses get started and to keep others from failing, to encourage or hamper imports and exports, to take care for the sick and elderly, to support the profligate, and so on. Ideally government should be a sort of caretaker, not of the people themselves, but of the conditions which will allow individuals, producers, traders, workers, entrepreneurs, savers, and consumers to pursue their own goals in peace. If government does that, and no more, the people will be able to provide for themselves much better that the government possibly could. Concepts of Economic Policy: * Economic policy seeks to achieve objectives such a high rate of growth, a low and stable rate of inflation and high levels of employment * Government seek to manage the economy through using a number of tools or policy instruments * The mix of policy instruments used varies overtime both...
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...rather than hypothesis. Social science means that it deals with human society and behavior, how people organize their activities and what they do to satisfy their needs and wants. Social science’s approach to studying human society is based on the social scientific method. There are four main aspects of economists’ disagreement. They include the importance of the economic growth and the economic development; how sustainability should be achieved in economics; whether the government intervention is necessary in creating the most efficient market or not; and how equity and efficiency affect each other, and if equity adds any complications. In further paragraphs you will find the evaluations of those problems that I will try to make. First of all, the economists deal with the problem of economic growth and economic development. The economic growth, in other...
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.... How Can Azerbaijan Diversify Its Economy Away from Petroleum Dependence to More Sustainable Economic Development? June 2012 By Nurana Mammadova* It is known that the "black gold" is the main supplier for the state budget of the Azerbaijan Republic. Approximately 74% of the state budget derives from the proceeds of oil and petroleum products, and therefore the economy is almost entirely based on the oil industry. All this warns us against a very disastrous problem. If we have abundant oil resources, it does not mean necessarily that we should generally use only them. After all, the rest of industry, agriculture, services, and so on remain on the sidelines. At the same time, there is potentiality for the development of other economic sectors, namely the agriculture, industry and other sectors. The problem is that as a result of Azerbaijan's economy dependence on oil, we did not pay much attention to the comprehensive development of our economy. And this in turn is negative for the economic development: that’s the reason why Azerbaijan is not able to be classified as a more developed country. In addition, it is known that the GDP index is the economic indicator for the development of a country. In the eventuality that a large part of the GDP derives from the exploitation of natural resources, this country can hardly be considered as developed. For example, Saudi Arabia's per capita GDP is almost higher than...
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...An economy or economic system consists of the production, distribution or trade, and consumption of limited goods and services by different agents in a given geographical location. The economic agents can be individuals, businesses, organizations, or governments. Transactions occur when two parties agree to the value or price of the transacted good or service, commonly expressed in a certain currency. In the past, economic activity was theorized to be bounded by natural resources, labor, and capital. This view ignores the value of technology (automation, accelerator of process, reduction of cost functions), and innovation (new products, services, processes, new markets, expands markets, diversification of markets, niche markets, increases revenue functions), especially that which produces intellectual property. A given economy is the result of a set of processes that involves its culture, values, education, technological evolution, history, social organization, political structure and legal systems, as well as its geography, natural resource endowment, and ecology, as main factors. These factors give context, content, and set the conditions and parameters in which an economy functions. The largest national economy in the Americas is the United States,[1] Germany in Europe,[2] Nigeria in Africa[3] and China in Asia.[4] A market-based economy is where goods and services are produced without obstruction or interference, and exchanged according to demand and supply between participants...
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...Consuelo Winn Mr. Sean Wilcox ENL 201 Writing June 16, 2013 The Impact of Economic Improvement in Ecuador In the last 34 years, since Ecuador returned to democracy and changed to the US Dollar for currency in 2000, life and the economy has drastically improved. Although Ecuador is still considered to be a poor country compared to “Westernized” countries its economy is ranked 8th in Latin America; includes Central and South America. This economy has grown due to two main changes: Governmental policy changes and focusing on increasing production of exports. However, with economic growth also increased environmental problems. One reason why the economy has improved is government policy changes. In 1979 Ecuador returned to democracy after nearly a decade of civilian and military dictatorships. Returning to democracy has given stability to a corrupt government. In 2000, Ecuador adopted the U.S. dollar as its national currency. Dollarization further stabilized the government as well as the economy since the U.S. dollar is seen as a stronger, more reliable currency throughout the world. Returning to democracy and changing to the U.S. dollar made Ecuador more appealing to tourists and investors; both of which added a much needed boost to the economy. One of the best examples of this would be the city of Cuenca. Tourism and investors from abroad has made Cuenca the number one retirement city in the world and has helped the country's economic development in the last decade. Economic...
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...and social problems in advanced capitalist economies. I am from China where a communist country is. It is a trend to change the governmental structure to capitalism, because the China’s economy is progressing that provides Chinese residents with better life and personal consciousness. All of these aspects influence the development of economic and governmental construction. In the countries of capitalism, there are three economic problems that exist in the society which the paper indicates the following aspects, such as mass unemployment, income inequality and environmental decay. Unemployment means that a significant portion of the population is not being allowed to participate fully in society. Mass unemployment is the result of economic depression, and income distribution is related to labor market. In the paper cites the two problems are endemic in the capitalist economies in that they are the natural results of the interplay of market force and the drive for capital to expand itself. I think unemployment and inequality are closely related to each other. Unemployment is the reason and inequality is the outcome. If a society wants to maintain its status quo, it must provide corresponding goods and service consumed to ensure the synchronization with the market. Employee and goods have been used up in the produced process. If the procedure is failure, it results the society shrink and the reduction in the living standard. Because of this principle raises the problem of distribution...
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...Essay Which of the two major approaches to Economic policy (Keynesian or Classical) will lead the USA out of the economic crisis faster? What are two differences between those two types of economic policies? This topic is very much of current interest because the U.S. economy is having quite a hard time these days. In order to properly review the problem I believe it is important to look deeper into the economic crisis of the United States. The problem with the US economy is very complex. One of the key problems lies in the huge public debt that accounts for $ 14,710,435,135,562,26 as of September 19, 2011. The problem with an enormous public debt of the U.S. is accompanied by the expansion of government spending which takes place at an exponential rate. The federal spending is almost 18 times higher than it was back in 1970. The third outstanding aspect is the huge amount of unemployed labor in the United States. The unemployment rate as of September 19, 2011 exceeds the 10% mark. The other sides of the critical economic situation include high levels of inflation and household debt and the following decrease in purchasing power of the population. The governmental bodies usually exploit one of the two major approaches to Economic policy. These include the Classical and the Keynesian approaches. The Classical economics theory employed the idea of economic liberalism which included the notion that economic laws are similar to the laws of nature. The action of these laws...
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...The economic problem, sometimes called the basic, central or fundamental economic problem, is one of the fundamental economic theories in the operation of any economy. It asserts that there is scarcity, or that the finite resources available are insufficient to satisfy all human wants and needs. The problem then becomes how to determine what is to be produced and how thefactors of production (such as capital and labor) are to be allocated. Economics revolves around methods and possibilities of solving the economic problem. In short, the economic problem is the choice one must make, arising out of limited means and unlimited wants. Contents [hide] * 1 Overview * 1.1 Opportunity cost and Production Possibility Frontier * 1.2 Needs * 1.3 Wants * 1.4 Choice * 2 See also | ------------------------------------------------- [edit]Overview The economic problem is most simply explained by the question "how do we satisfy unlimited wants with limited resources?" The premise of the economic problem model is that wants are constant and infinite due to constantly changing demands (often closely related to changing demographics of the population). However, resources in the world to satisfy human wants are always limited to the amount of natural or human resources available. The economic problem, and methods to curb it, revolve around the idea of choice in prioritizing which wants can be fulfilled.. and how do we know what to produce for the economy........... ...
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