Introduction to Economics

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MANAGEMENT & SCIENCE UNIVERSITY
INTRODUCTION TO ECONOMICS (DEC 0053)

ASSIGNMENT 1 (INDIVIDUAL)

Due Date: 4th January 2013 (Friday)
Format : Typeface: Arial, Font: 11, Spacing: Double, Cover Page: White colour Assessment: 50 marks

Question
a)Reference to the notes, article, internet and any text book on the Economic System, make a comparison between the socialist, capitalist and the mixed economy. Take one nation/country to explain that each economic system used by the nation/country. Your explanation must be including: i.The characteristic of economic system

ii.Advantages and disadvantages for three types of economic system iii.How the economic system for each nation/country solve the basic economics problem

b)Do you think the government should set “ceiling price” and “floor price” for certain goods? (eg. flour, sugar, cooking oil). Explain with reasons.

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Republic of Cuba

Republic of Cuba is a good example of a socialist country. Republic of Cuba has been using the socialist economic system since 1st of july 1961. The characteristic of a socialist economic system are : * Public ownership of resources

* Central planning authority
* Price mechanism of lesser importance
* Central control and ownership
Besides that, the advantages and disadvantages of the socialist economic system are : Advantages| Disadvantages|
- Production according to basic need- Equal distribution of income and wealth- Better allocation ofresources- No serious unemployment orinflation- Rapid economic development- Social welfare| - Lack of incentives and initiative by individuals- Loss of economic freedom and consumer sovereignty- Absence of competition- Waste of economic resources|

It's up to the planners a.k.a. the goverment on how to solve the basic economic problem. But they too, solve the problem based on the three main questions. What to produce? Planners will decide what will be produced. One of the methods used to find out what the consumers want/need is by using a simple way of surveying. How to produce? Planners direct the resources into producing units. Again, planners decide on the quantities of output and methods of production such as labor or capital intensive. For whom to produce? Planner tries to be fair in distributing the output to the economy to make sure everyone gets. Wages are determined by the planners themselves, which in a way they've determined how much a consumer can consume.

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United Kingdom

United Kingdom is a capitalist country based on private ownership and free trade. The characteristic of capitalist economic system are : * Private ownership of resources
* Freedom of enterprise and choice
* Consumer's sovereignty
* Competition
* Goverment intervention
* Price system
Besides that, the advantages and disadvantages of capitalist are : Advantages| Disadvantages|
- Production according to consumer's needs- Economic Freedom- Efficient utilization of resources- Variety of consumer goods- Enhanced trade, business and research and development- Automotic incentives- Flexibility| - Inequality of distribution of wealth and income- Inflation and high unemployment rate- Lack of social welfare- Wasteful competition- Misallocation of resources- Social cost|

A capitalist economy solves it's basic economic problem by referring back to the three main questions, "What to produce?" "How to produce" and "For whom to produce?" What to produce? Consumer sovereignty! Which basically means whatever the consumer wants. Consumers have all the power and a firm will only produce a good if a consumer is prepared to buy it. How to produce? This depends on the firms. The method should be as efficient as possible and prices should be as a low as possible. This is due to the fact that there's a very competitive environment. Assuming...
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