MGTA01H3 Chapter Notes - Chapter 3: Planned Economy, Economic System, Toothpaste
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●Economics
○The study of how people produce the things they need and want
●Economic system
○The means by which a society produces and distributes the goods and services
that its people need
●Through its choice of economic system, a country determines the following
○Who owns the factors of production
○Who controls the factors of production
○Who decides what needs to be produced
○Who decides how goods and services are distributed
●Planned Economies
○An economic system where the government takes the lead role in owning and
controlling the factors of production. In a planned economy, the decisions about
what gets produced and how it gets produced are determined by a government
plan
○Countries in which most of the factors of production are controlled by the state
○Those who advocate for this economic system base their arguments on two key
points
■Only the state, with its ability to create and enforce the law, has the power
and the authority necessary to feed, clothes, shelter, education and employ
the nation’s entire population
■Businesses are primarily concerned with making a profit. Therefore,
businesses have no concern for those who aren’t customers, or do not have
the money to buy products. Only the state has a benevolent interest in the
welfare of all members of society
○Weakness is that despite the state’s power and desire to do good it cannot ensure
that its plan will produce the precisely correct quantities of every conceivable
good or service
○Communism
■An economic system where all the factors of production are controlled by
the state, and where there is no private property
■Today, there are no countries which operate a purely communist economic
system, as Marx envisioned
○Socailism
■An economic system where the government owns or controls the majority
of the factors of production and directs the majority of productive activity
■The distinguishing characteristic is that the lead role played by the
government, which intervenes heavily through taxation, regulation, and
through its day-to-day management of large and important industries
■The philosophy that guides socialist economies is that only the
government has power, the resources, and the motivation to provide a
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nation’s citizens with the important essentials.
●Market Economies
○A country with an economic system in which individuals make the decisions
about what gets produced
○Countries in which most of the factors of production are controlled by individuals
and where entrepreneurship and business ownership are encouraged
○Those who advocate for market economies argue the following
■While state control sounds good in theory, it tends to work poorly in
practice. People need an almost infinite variety of things: toothpaste,
coffee, running shoes, haircuts, raincoats, bicycles, fitness instruction,
books, calculators and laptops, to name just a few. The full range of
people’s needs, people of different genders, ages, tastes and personalities,
is simply too vast for any one entity- even the government - to plan,
produce and distribute effectively
■Government bureaucrats, working in offices far removed from the reality
of busy streets, lack the information and the “feel” for the average
person’s changing needs and changing tastes. While it might be true that
only the state can mobilise the capital, the people and the other resources
needed to fight a war, government officials won't have the skills, the
information, or the motivation to effectively run your local barbershop,
your neighbourhood pub or an antique store
■A benefit of private enterprise is competition: If you don’t like the price,
quality or selection of goods on offer from one business, you can generally
walk down the street to find another. State run enterprises lack the
motivation discipline of having to compete for your patronage. Without
that competition, state-run enterprises can become unresponsive, wasteful,
and inefficient
■Planned economic systems concentrate a great deal of power into the
hands of a small number of the political elite. History and experience
show that power corrupts. History also shows that political leaders can be
as vain, selfish, greedy and corrupt as anybody
○Pure capitalism
■An economic system in which all the factors of production are owned by
private individuals. All economic activity is privately run, citizens pay no
taxes, and the government imposes no regulations on business
■There are no purely capitalist economies
■Virtually all “capitalist” countries operate on economic systems where
private enterprise is given primary responsibility for producing goods and
services, but government is given the role of imposing and collecting
taxes, and creating and enforcing regulations
○Mixed markets
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Document Summary
The study of how people produce the things they need and want. The means by which a society produces and distributes the goods and services that its people need. Through its choice of economic system, a country determines the following. Who decides what needs to be produced. Who decides how goods and services are distributed. An economic system where the government takes the lead role in owning and controlling the factors of production. In a planned economy, the decisions about what gets produced and how it gets produced are determined by a government plan. Countries in which most of the factors of production are controlled by the state. Those who advocate for this economic system base their arguments on two key points. Only the state, with its ability to create and enforce the law, has the power and the authority necessary to feed, clothes, shelter, education and employ the nation"s entire population. Businesses are primarily concerned with making a profit.