Question

Question 3. Contrast how a market system and a command economy try to cope with economic scarcity. Justify your answers with detail.

Answer 1

Ans)* Market economy is the economy where producers produce goods without the intervention of government. Here will of the consumer is supreme and demand and supply depends upon the market.

• In market system the problem of what to produce is solved as consumer is king, and whatever he demands will be produced.
• Next how much to produce is solved by using price mechanism i.e. law of demand and supply. Depending upon the demand, supply will be adjusted.
• The problem for whom to produce is solved by purchasing power of the consumer. The more they earn, the more able they are to buy, the more they are will to pay. Therefore production is for those who are capable of paying more amount.
• Lastly the problem of how to produce is solved as company will use most efficient way of production either by using efficient technology or effectively using the labour to maximise the production.

Hece, market economy cope with scarcity by increasing the productivity in most efficient way possible.

* Command economy is the one where goods are owned publicly and government decides the economic activity.

• In command economy, what to produce depends upon the need and not the choice of consumer. So whatever is needed will be produced.
• Next how much to produce depends upon the the government. Whatever he feels is the quantity needed in an economy will be produced.
• How to produce depends upon the availability of the resources and hence government will decide the means of production. Whichever means he deems suitable will be used.
• For whom to produce depends upon the will of the government, to whom he wants to distribute and the paying capacity of the consumer.

Hence in command economy , government cope with scarcity by producing only necessary goods.