Political Economic Systems.pdf

2011.1.20 IBE I FF Page 1 of 15 Differences in Political and Economic Systems Question: Between a command economy and a market economy, which is more conducive to economic development? Think: Situations in which a market economy has its drawbacks and a command economy is more conducive. ? 由于老师在 revision 里只提到 command economy 和 market economy 的比较，所以其他 的比如 country attractiveness risk 我就都删了不提了. 如果有童鞋认为有必要介绍那 些我没摘入的信息，告诉我我再加上~ 2011.1.20 IBE I FF Page 2 of 15 A Command Economy/Planned Economy: Definition: The government plans the goods services that a country produces, the quantity to be produced, and the prices at which to be sold (central-planned production activities and price). Objective: To allocate resources for “the good of society” / “the common good” (Plato, utopia) Features: 1. All businesses are state controlled and owned (make investments: in the best interests of the nation as a whole rather than in the interests of private individuals) 2. State-owned enterprises: little incentive to control costs and be efficient 3. Abolition of private ownership (strong restriction of the private sector): no incentive for individuals to look for better ways to serve consumer needs 4. Approval or license required for business and industrial activities 5. Absence of dynamism innovation 6. Economy stagnates 7. Associated with totalitarianism, dictatorship, and repressed human right development 8. Associated with Marxism, Communism Examples: 1. North Korea 2. Former Communist countries until late 1980s 2011.1.20 IBE I FF Page 3 of 15 A Market Economy: Definition: All business activities are market-oriented and driven, production is determined by the law of supply and demand (mechanism of the price system) Theory: Adam Smith (advocate of market economy): Invisible hand (self-regulating nature of the marketplace): conjunction of the forces of self-interest, competition, supply and demand - so m