Question

How to answer following which is all tight together? What is the issue of economy calculation in socialism, and explain the reasons about market economy being more effective than a command economy; and with that what are the most significant points of prices?   

Answer 1

Economic calculation in socialism: Economic calculation criticises the economic planning in a socialist economy where all/most of the means of production are owned by the government and no rational pricing of goods and services are possible and it is like only transfer of goods and services and prices of goods and services are nor priced according to market forces of demand and supply.

Reasons of more efficient of market economy than command economy: Market economy is driven by market forces of demand and supply for goods and services and in a market economy property is owned by private individuals which owns the resources and are at liberty to use the resources for what, how and how much to produce and this ensures availability of products and services as per the market demand and supply factors and ensures which type of products should be made available to certain kind of consumers and private companies/individuals makes available the different type and with different quality of goods and services as per different market segment for them and makes profit accordingly which is difference of cost and price and in market economy government does not control prices and let market forces decides the prices for goods and services but in a command economy which is controlled by the government there is no or very less pricing flexibility is available since prices are decided by the government authorities and what and how much of goods and services are to be produced and this discourages to produce high quality of goods as per the demand of certain type of consumer segment and command economy also creates issue of demand and supply gap, when there is a gap between demand and supply of specific product then its creates another issue which cannot address the same immediately and creates inefficiency. Income distribution is also controlled by the command economy.

In market driven economy the gap in demand and supply can be understood from market forces and can be addressed immediately by increasing or decreasing the supply of the goods and services and this helps the private companies to adjust its prices and supply accordingly and make profit accordingly and this encourages them to innovate further and helps in understanding market behavior and behave accordingly.

Significant points of prices: 1 Prices are determined by market forces of demand and supply.

2 Prices are not controlled by the government.

3 Pricing is adjusted as per the demand and even with the conditions of different market segments and private individuals and companies motive is to make profit with the sale of their products and services in order to be incentivise themselves for to continuously produce and be competitive in the market.