Question

Contrast how a market system and a command
economy try to cope with economic scarcity.

Answer 1

Scarcity of resources is a problem faced by all types of economy. The use of scarce resources is different in different economic system as discussed below.

Resource allocation is inefficient in a command economy because there is a public ownership of resources where a single central planning authority determines where to use these resources. Due to this reason, the valuation imposed by them on goods and services does not reflect the valuation of consumers or producers. This results in allocations where shortages and surpluses often result. Key areas where most of the resources are used include military, heavy engineering industries, and capital goods

In market system, resource allocation is determined by market forces where economic agents decide which resource is used where. This decision is taken using profit maximization and utility maximization principles by using resources that have private ownership. Hence resource allocation is efficient because it is done through market prices. There is no central planning unit but each and every product or service produced in the economy uses market forces of demand and supply. Hence market mechanism decides what to produce and how. Both capital goods and consumers goods are likely to be produced.