Econ Systems
There are several different methods that can be used to allocate our scarce resources. There is no absolutely correct way of allocating scarce resources. A particular method might prove to be ideal in one situation but less satisfactory in other situations. Today we will talk about the many methods with an emphasis on the four most common economic systems of Market, Command, Mixed, and Traditional. (handout)
Market System (Free Market)
The market system of economics is the preferred method in the United States. In our "free market system," what to produce, how much to produce, and the worth of goods and services, is decided by buyers and sellers. There is little government intervention or central planning and the supply and demand of goods and services determines what is sold and for how much.
Command System (Planned)
Exist in communist countries. Government planners decide what and how much is to be produced and distributed by whom, when, and to where. Producers generally have little choice about what goods and services they will produce. Their main task is to meet their assigned production quotas (make a certain amount). Prices are set by government planners and do not change according to supply and demand. In some situations, government planning works fairly well, as long as the economy is simple and the variety of goods and services desired is small. Furthermore, planned systems might even be necessary under certain conditions, during wartime for example.
Mixed System
A mixed economic system is an economic system that features characteristics of both a market system and a command system. Most modern countries have a mixed economic system with economies falling at some point along a continuum.
Traditional
A traditional economic system may used to allocate resources. What was done in the past is what will be done in the future. A traditional economy is a system that relies on customs, history and time-honored beliefs. Tradition assumes that things do not change and that if it worked well in the past, it will work as well in the future. The caste systems of India and the feudal systems of European monarchies all used a traditional economic system. Traditional economies usually depend on agriculture, fishing, hunting, gathering or some combination of the above. They use barter (trading of goods and services) instead of money. Most traditional economies operate in developing countries; many of which, are located in Africa, Asia, Latin America and the Middle East.
Other Methods of Allocating Resources
Other methods of allocating resources include by brute force, queuing, random selection, equal shares, and need.
Brute Force is another way of deciding who gets what. We see this method used in the animal kingdom. The biggest, strongest, and the fastest animals get what they want. This method is very wasteful. The weaker individuals do not get enough scarce resources to survive properly or to become more productive. The stronger become fat and lazy, wasting scarce resources or no using them efficiently.
Queuing (lining up) is another method for deciding who gets what. This method is based on the principle of first come/first served. This is a preferred method of selling concert tickets, but this method has some flaws. Too much time is wasted standing in lines and not enough time devoted to producing something. If the item being sold is really scarce, then often times a black market for the product is created. For example, scalpers reselling concert tickets for many times their original price.
Equal Shares is when each individual receives the same amount. At times, this sounds the most fair but there are times that it isn't. For example, think of distributing the same portion of food to people. A person weighing only 100 pounds would get the same as a person weighing 200 pounds.
Random Selection is when everyone has an equal chance. Allocation through random selection can be done by drawing names from a hat, drawing straws, or a more sophisticated system using computers. This is not an efficient system of allocating resources. For example, if jobs were allocated by random selection, some of us might get the perfect job but many people will receive jobs they were never qualified for or simply do not like. Production will suffer.
Need as a basis for resource allocation refers to those who appear to be the neediest going to the head of the line. It is very hard to determine when another individual falls into this "needy" category. It is also difficult to determine when this individual no longer is needy.