Market Economy vs Planned Economy free essay sample

The market economy is not run by a high authority. Instead it is run by many individuals regarding production, consumption and work. * The market is free and prices can be of a wide range * The market economy is intended for a middle/upper class. This is because people can earn as much money as they want, upper class people don’t have to distribute a profit evenly. * The theory of the market economy is to give people the capability to earn as much money as they want and do what they believe is in their best interest e. . a modern citizen designs a product and keeps 80 % of the profit and leaves the 20% precent of the profit to be evenly spread between the workers. * The market economy doesn’t cater for the poor, the sick, the disabled and the old age people. * The high authority cannot control how much is produced or how much the product will be sold for e. g. companies can produce as much as they like and make as many colours as they like. | * The Market economy is run by a high authority. It is usually the Government e. g. North Korea’s, he/she controls how the economy operates. * The Government makes a decision on the price of goods and services. * The Planned economy is aimed at a lower/middle class. This is because people’s incomes are evenly distributed by the Government so there is a small chance a person can become richer than another. * The theory of the planned economy is to ensure an equal amount of credit is given to everyone that contributes to making the economy greater e. g. companies distributing the credit for producing socks. The planned economy gives an equal amount of income to everyone which helps the sick, the old, the weak and the disabled * The high authority decides how much is going to be produced, in what way and the amount of profit that given to the labourers e. g. there is a t-shirt company, the government enforces the rules about how many is made, what colour and the income of the labourers| Information used from http://www. oppapers. com/essays/Market-Vs-Plan ned-Economy/160245 Use as source http://www. twq. com/04autumn/docs/04autumn_crocker. pdf Market Economy Effectiveness The success of the market economy is that the public can have private ownership of a company, â€Å"the prices of goods and services are set by the supply and demand of goods and services† http://www. differencebetween. com/difference-between-command-economy-and-vs-market-economy/ , This means that the market is free and there is no other organisation that can intervene with the way it functions. The economic problem â€Å"An economic problem is basically the problem of choice which arises because of scarcity of resources. † http://www. preservearticles. com/201104115229/what-is-an-economic-problem-and-why-does-it-arises. tml â€Å"The economic problem emerges because our desire for goods and services to consume is greater than our ability to produce those goods and services. The demand for goods and services arises from human wants. † http://faculty. etsu. edu/hipples/ProbSys. htm, these definitions mean that the producers cannot keep up with the demand for good s and services because of the limited amount of resources. The level of per capita income in a market economy is high because the profit of organisations goes towards the economy, the owner/CEO, and the employees. If the income distributed to the workers increases then they are motivated and more productive as they realise the harder they work the more money they make. This can have a major effect on the economy because the more the income earned the more will be spent on goods and services which provides more work for others. The businesses itself supports the economy by spending money on shares and spend more on wants such as new technology and resources to run the company, they also lend money and invest money. The way the Market economy handles the economic problem is by increasing and decreasing the price of goods and services with use of resources and discovery of new resources. The market economy creates wide competition so prices can be cheap creating more demand and eliminating competition. The market economy allows for infinite products to be introduced, the prices of these affects the way the consumers think about the quality and cost of the goods. The availability to goods and services in a market economy are huge because of the new businesses being created every year offering new products. The market economy is packed with new businesses offering new products. The public’s demand for products increases every year, as technology grows the public get induced and buy, buy, buy. This creates business opportunities for many, meaning a great access to a wide variety of products. Usually law and order in a Market economy is balanced to suit the public’s needs. In America there is plenty of policemen, lawyers and judges. The amount of youth crime in America is show on the website http://bjs. gov/content/pub/pdf/iscs11. df , the site states â€Å"In 2009 about 31 precent of grade 9-12 reported they had been in a physical fight at least once during the previous 12 months†, the website https://www. ncjrs. gov/pdffiles1/ojjdp/233581. pdf displays a graph. This graph indicates that the crime rate of youths depleted from 1996 to 2001 but then sharply rose. This indicates that the education in America is needs to be enforced stronger. The environmental quality in a market economy The social reform in a market economy is that it offers a lot of choice and sustainability. It provides an environment where people can afford more than needs such as health care, education and housing. It provides a better life for its workers. An example of this would be In Japan many people are born in a hospital and another example would be that it is compulsory for students to go to school and get proper standard of education. This economy increases education through the need for smarter people to create businesses and new technology and ideas, in the businesses other highly educated people are needed e. g. Scientists, economists, teachers, computer experts and architects. The education in a market economy may have a variety of factors which make the education higher or lower in a country, the amount of schools, the skill level of teachers and the attitude of the students. The amount of schools is affected by resources, builders and designers. High educated people are needed for designing a building. The skill level at which teachers are taught may affect the education and in a market economy teachers are paid highly in return for the use of their skills in a school environment. The attitude of the students really depends on what they want to achieve in life and also their family, their family may alter their view on what they want to achieve. Information about market economy the public have free rights to create a business/company. This is important in our economy as it relies on businesses to fuel the economy through employment, shares, imports and exports. The right to create a company can increase or decrease employment, for example a building may need to expand so it hires more people, increasing inflation. The building may need to cut some employees, decreasing inflation. An important characteristic of the market economy is it allows â€Å"Private ownership of property through the existence and enforcement of private property rights†, Year 11 economics 2011, pg 40. The market economies have a high standard of living because everyone has the right to earn as much money as they like. The companies that create the products will have to increase and decrease their prices as peoples income goes up and down, this raises the amount of competition. The government has made a policy where a company can only set a price between what the government’s policy says, this policy is also referred as price dog. This prevents large businesses creating a monopoly and exposing its producers. It also allows for smaller companies to compete. The country Syria is about to transform a planned economy to a market economy. According to ‘Hard choices for the government. Economist’, the change will have a massive raise in the cost for lifes needs: food, water and clothing. The planned economy it was in showed that everyone had job to pay for these essentials even though wages were fairly low. The Syrian Government is in need of money so this is its way out. But in the long run everything will catch up making a securer economy, the income of people will raise due to foreign investment creating more employment in areas such as oil and agriculture. The U. S is putting slight pressure on the government to change as it will increase the value of the American dollar because of foreign investment. The Syrian dollar might raise slightly but no where near as much as the Australian dollar or American Dollar. When finite resources are found the market economy will show an increased raise in the GDP for example, Australia was heading for a depression in 2007 but then large amounts of finite resources were found, which increased the Gross Domestic Products sold raising the dollar. The Government does very little for the Economy such as ensuring a standard level of competition and putting money from businesses back into the economy. Planned Economy The planned economy has special processes involved it, it is run usually by some high authority such as the government (North Korea’s Dictator) or other people of high authority. The powerful leader sets prices for particular goods and services. Many economists will define a planned economy as â€Å"the production of goods and services when it is needed. † http://www. differencebetween. com/difference-between-command-economy-and-vs-market-economy/ The level of per capita income in a planned economy is balanced because as the communist manifesto states â€Å"everyone earns the same amount of income†. The Government takes a piece of everyone’s incomes and spends it on things in its national interest, some of which are dams, recruiting people into the Amy, agriculture, education and basic medical needs. The balance of income is positive because people’s needs are met first. An example of a country with a balanced income would be North Korea. Every single person earn $1,800(International Currency) per annum according to the CIA world fact book, the information is from 2004(www. cia. gov/library/publications/the-world-factbook/rankorder/2004rank. html ). What this does to the North Korean economy is lower the price of goods and services making them more affordable for the people. Information about Planned Economy In a planned economy, usually a communist country, the Government decides, based on what their goals are, the amount of goods and services that are to be produced, the price of products, the process in which the product is distributed and the income of the public. The Government sets a goal for industries and companies for the amount of products to be produced and how they are produced e. g. The Government may say to a shoe company we need you to make 3,000,000 pairs of shoes within 7 weeks, and you must produce them in this way and must only distribute them to these people. The price of products is affected by the government, this can be a positive because prices help prevent wastage of resource, and they act as signalling devices to producers and consumers to adjust their economic behavior† See PowerPoint list in refernces. The Government can control the price of g + s if it thinks the g + s will rise too much causing lower demand by the public. The employment is broken down into three sectors: Primary, econdary and tertiary. A country like Cuba would have more primary industry wokers rather than tertiary workers because education would be low, everyone would have to get a job so most would resort to work where little experience is needed. A country with like America would have more tertiary and secondary workers because America has a free market, which gives opp ortunity for everyone to make income and education is high. Income is set according to the job profession and cannot be increased (it is decided by the government when to be increased and not by the organisation). The Government decides how much of the public’s income should be taxed. The range of a particular a good e. g. pants were limited so only one brand maybe produced. In a planned economy â€Å"selection was restricted to the source of goods and services and private decision making in regards to employment, job area and choice of work environment was also strictly limited. † http://www. enotes. com/centrally-planned-economy-reference/centrally-planned-economy The benefits of having a centrally planned economy . â€Å"The production of goods and services cannot be brought about by the people through demand. Because the state possesses all the products produced, people that contributed to the profit will get an equal amount of money; this ensures no one is subject to an unjust amount of money e. g. a company earns 50 dollars profit and the CEO get %80 and the rest of the workers evenly get a part of the remaining %20. People cannot bring about the production of goods and services through demand. * Because the state owns all of the factor of production, any profit can be re-distributed so that the people who contribute to the profit can benefit from it. Refernces Hard choices for the government. Economist, 00130613, 1/22/2011, Vol. 398, Issue 8717 Essay The quality of life is higher in a market economy than a planned economy. The level of income per capita in a market economy is sophisticated and efficient creating profit, whilst the planned economy lacks the structure of distribution of income to people. The education provides a demand for highly educated people performing specific tasks, whilst a planned economy barely delivers some skilled people. The health care in a Market economy provides the best medical services but costs, the planned economy offers a balanced health care system. The market economies’ sophisticated distribution of income within a market economy is much more efficient than a planned economies distribution of income. The level of per capita income in a market economy is high because the profit of organisations goes towards the economy, the owner/CEO, and the employees. If the income distributed to the workers increases then they are motivated and more productive as they realise the harder they work the more money they make. This can have a major effect on the economy because the more the income earned, the more will be spent on goods and services which provides more work for others. The businesses itself supports the economy by spending money on shares and spend more on wants such as new technology and resources to run the company, they also lend money and invest money. The planned economy distributes a large percentage of the profit to the government and the rest is distributed equally amongst the workers, and this can cause a dramatic change in the increase and decrease of inflation in a country, which can cause unpredicted resulting in a depression. But an unequal distribution of income can also create problems â€Å"High inequality threatens a country’s political stability because more people are dissatisfied with their economic status, which makes it harder to reach political consensus among population groups with higher and lower income† The profit from organisations goes equally towards CEO’S and employees. In effect the motivation of the CEO’S and employees goes down because they cannot work harder towards a better goal thus the economy will start to destruct. The jobs in a planned economy are scarce â€Å"selection was restricted to the source of goods and services and private decision making in regards to employment, job area and choice of work environment was also strictly limited. †. Since the government decides what can and cannot be made certain jobs are restricted . e. g. since there are a small amount of factories in Cuba, jobs will be limited. But everyone receives a job even if it is not what they decide. In planned economy the peoples basic needs are to be met, the profit from the goods are services is controlled by government. In both economies there is a high demand for highly skilled employees. This economy increases education standard through the need for smarter people to create businesses and new technology and ideas, in the businesses other highly educated people are needed e. g. Scientists, economists, teachers, computer experts and architects. The education in a market economy may have a variety of factors which make the education standard higher or lower in a country, the number of schools, the skill level of teachers and the attitude of the students. The number of schools is affected by resources, builders and designers. High educated people are needed for designing a building. The skill level at which teachers are taught may affect the education and in a market economy teachers are paid highly in return for the use of their skills in a school environment. The attitude of the students really depends on what they want to achieve in life and also their family, their family may alter their view on what they want to achieve. An education in a planned economy is equal among all students and the benefit of this is everyone receives the same education promoting a country with fair opportunity for learning. In planned economy students may not acquire the base line education to achieve a specific goal e. g. all schools in Cuba may not teach physics, making it hard on students to become a pilot or astronaut. Some planned economies offer a prestigious education in some areas e. g. Cuba has highly educated doctors which are constantly being hired by other countries. Schools are run by the government, are free and compulsory, which means less burden on families. Schools provide free uniform and free meals for students. The universities are also free, that means students can access education based on their merit without the financial burden. The two economies provide highly educated doctors part health care systems, both are efficient in different ways The Market economy provides a very efficient health care system, but only for those that can afford it. There is no public health care system in a market economy, instead there are many private healthcare companies, these often are high in cost. America is close to having a market economy but they have a somewhat health care system but it is not very efficient because of the lack of doctors as most work for private health companies. Australia on the other hand has a well-structured health care system as everyone.