MGMT1101 Lecture Notes - Lecture 10: State Ownership, Price Mechanism, Profit Motive
19 May 2018
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Week 10 – Transition Economy
Economic Systems: The set of arrangements and institutions by which the decisions are made on
basis economic questions of what, how and for whom to produce
- Features:
1. Whether/not the locus of economic decision making is centralised/decentralised
2. Whether central planning or market system informs & determines resource allocation
and distribution questions
3. Nature of incentive systems
4. Property ownership control
Types of Economic systems:
- Market Economy: An economic system in which interaction of indiv decision makers on qns
of Supply and Demand determines the Quantity in which g/s are produced
➢ Supply must not be restricted (only monopolies)
➢ Private property rights
➢ Freedom of enterprise within framework of govt regulations
➢ Resources allocated through market forces (S/D)
➢ Consumer preferences, buyer orientation
➢ Profit motive for firms
➢ Incentive for indiv entrepreneurship
➢ Purchasing patterns of consumers + Profit-seeking producers = Price mechanism (price
system)
➢ Open and globalising economy
- Command Economy: An Economic system where the allocation of resources, including
determination of what g/s should be produced, and in what quantity, is planned by govt
➢ State ownership or resources
➢ State allocation of resources through Five Year Plans
➢ Central Planning
➢ Political preferences, production orientation, constant shortages
➢ Consistent with collectivist ideology
➢ Communist countries / Closed economy
➢ No incentive for individuals to look for better ways to serve consumer needs (fulfil
quotas not profit)
- Mixed Economy: An economic system where certain sectors are left to private ownership
and free market mechanisms, while other sectors have significant govt ownership and govt
planning
➢ Govt tend to take into state ownership troubled firms whose continued operation is
thought to be vital to the national interest
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Economic systems: the set of arrangements and institutions by which the decisions are made on basis economic questions of what, how and for whom to produce. Features: whether/not the locus of economic decision making is centralised/decentralised, whether central planning or market system informs & determines resource allocation and distribution questions, nature of incentive systems, property ownership control. Market economy: an economic system in which interaction of indiv decision makers on qns of supply and demand determines the quantity in which g/s are produced. Supply must not be restricted (only monopolies) Freedom of enterprise within framework of govt regulations. Purchasing patterns of consumers + profit-seeking producers = price mechanism (price. Command economy: an economic system where the allocation of resources, including determination of what g/s should be produced, and in what quantity, is planned by govt. State allocation of resources through five year plans. No incentive for individuals to look for better ways to serve consumer needs (fulfil quotas not profit)
