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Part (a) Discuss the weaknesses of the command (planned) economy in allocating resources.Part BWhen supply falls, price rises. When price rises, supply rises. Discuss this statement, using diagrams and examples in your answer - Essay Example

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All economic systems focus on the issue of optimum allocation of resources and they solve this issue by deciding upon what to produce, for whom products will be produced and how to produce goods and services. In a planned economic system, the government of a nation is in…
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Part (a) Discuss the weaknesses of the command (planned) economy in allocating resources.Part BWhen supply falls, price rises. When price rises, supply rises. Discuss this statement, using diagrams and examples in your answer
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Part (a) Discuss the weaknesses of the command (planned) economy in allocating resources.Part BWhen supply falls, price rises. When price rises, supply rises. Discuss this statement, using diagrams and examples in your answer

Download file to see previous pages... means that those who are directly in contact with the customers do not decide what to produce even though they have the information regarding those goods and services that are high in demand. Due to this lack of information, those on the top level of the economic system may fail to predict what goods are higher in demand and may divert more resources towards goods and services that are less in demand and this may lead to over allocation of resources towards producing those goods and services that are not in demand. If more resources are diverted towards such goods and services, goods and services that higher in demand will be produced less and thus resulting in an increase in level of shortage. While those goods that are less in demand and are produced more may be wasted and thus resources that are not abundant in nature may be wasted.
2. The basic rule of demand and supply states that while holding other factors constant, increase in prices lead to increase in supply and decrease in demand for goods and services and decrease in prices lead to increased demand and decreased supply of goods and services. This is because at higher prices, suppliers are able to make higher profits and they are willing to selling more and due to this they increase their supply. But if prices increase, consumers are able to purchase less and they demand less for a product because they have to pay higher prices. On the other hand, if prices decrease, suppliers are less willing to sell as their margins decline and consumers demand more because they are willing to purchase more due to decrease in prices.
Figure one represents a supply schedule stating different quantity of product supplied at different price level. Figure 2 is an illustration of changes in quantity supplied with changes in prices of a product. The rightward slopping curve marked with “S” is the supply curve. On the X axis is the Quantity supplied and the Y axis represents the quantity demanded. Point S1 shows that ...Download file to see next pagesRead More
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