Explain why a centrally-planned economy might not grow as rapidly as a market economy
What will be an ideal response?
Technological change is very important for growth. Simply accumulating inputs will not ensure growth unless technological change occurs. This is essentially what happened in the Soviet Union. The Soviet Union failed to enhance growth when it simply increased its capital to labor ratio because it did not foster technological change at the same time. In a market economy, entrepreneurs make decisions about employing technology and seeking innovations. If the entrepreneur makes a correct decision, then he or she stands to make a large profit. In a centrally planned economy, these decisions are made by managers employed by the government. If the innovation works out, the manager may not reap any sort of benefit from it. Likewise, if the innovation fails, the manager's financial position is unaffected. Because of this, managers employed by the central government may be slower to adopt new technologies as compared to entrepreneurs in a market economy. The profit incentive spurs entrepreneurs in market economies to move more quickly.
You might also like to view...
Refer to Table 4-10. An agricultural price floor is a price that the government guarantees farmers will receive for a particular crop. Suppose the federal government sets a price floor for wheat at $21 per bushel
a. What is the amount of shortage or surplus in the wheat market as result of the price floor? b. If the government agrees to purchase any surplus output at $21, how much will it cost the government? c. If the government buys all of the farmers' output at the floor price, how many bushels of wheat will it have to purchase and how much will it cost the government? d. Suppose the government buys up all of the farmers' output at the floor price and then sells the output to consumers at whatever price it can get. Under this scheme, what is the price at which the government will be able to sell off all of the output it had purchased from farmers? What is the revenue received from the government's sale? e. In this problem we have considered two government schemes: (1 ) a price floor is established and the government purchases any excess output and (2 ) the government buys all the farmers' output at the floor price and resells at whatever price it can get. Which scheme will taxpayers prefer? f. Consider again the two schemes. Which scheme will the farmers prefer? g. Consider again the two schemes. Which scheme will wheat buyers prefer?
Suppose employees pay a bond of $1,000 to an employer. The gain from shirking is $400. Monitoring devices have been installed so that there is a 50% chance of being caught if you are shirking
The company is considering the installation of additional monitoring devices to increase the chance of catching a shirker to 100%. They feel this is needed to deter all shirking. What is your recommendation to the company? Explain.
A benefit of deductibles and health savings accounts is that they
A) reduce the moral hazard problem associated with third-party payers. B) increase the quality of health care. C) reduce the use of expensive techniques for hopeless cases. D) reduce the incomes of physicians.
The aggregate demand curve is downward sloping because an increase in the general price level will cause the demand for money, interest rates, and investment to change in which of the following ways?
A) Increase/Increase/Increase B) Increase/Increase/Decrease C) Increase/Decrease/Increase D) Decrease/Increase/Decrease E) Decrease/Decrease/Increase