Embedded Files
--THINK AHEAD--
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"Referring back to the castaway clip,
"...what role was he playing when he decided he 'wanted' coconut water—was it as consumer or producer?
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"What about when he decided on 'how' to extract the water? Was it as the consumer or producer?"
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"Finally, what about when he decided that he would be the 'for whom' that gets to drink the water? What right did he have regarding the ownership of the factors of production that were used to get the water? And how did this ownership allow him to decide who consumed the water?"
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"You should realise that 'What to produce?' was determined by the castaway as the consumer, who informed himself as the producer, what was wanted."
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"'How to produce?' was determined by the castaway as the producer wishing to be as productive and least wasteful of his precious time as possible (The opp. cost of collecting water, was not building shelter, or starting a fire etc..), and..."
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"And finally, 'For whom to produce?' was decided by the fact that the castaway was the owner of the factors of production and thus able to fully decide to ration the output to himself as his 'income' or 'reward' for providing these resources."
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"So in terms of the 'system' used by the castaway to make these 3 decisions, we can say that in his 'economy' the producers responded to the wants of the consumer and produced the goods most desired, and in an attempt to maximise their rewards (the amount of water they could receive), they used the most efficient and time-saving methods before rewarding themselves due to the fact that they had full ownership of the factors of production."
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--TASK--
"Using real-world examples, explain to what extent Hong Kong's economic system exhibits these characteristics."
SENTENCE STARTER: "Hong Kong's economic system exhibits these characteristics because firstly...
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--1.4.1 ECONOMIC SYSTEMS--
--1.4.1 ECONOMIC SYSTEMS--
--FREE MARKET SYSTEM--
"The castaway example above closely illustrates an economic system called a FREE MARKET SYSTEM in which the factors of production are predominantly privately owned, individuals are free to set up businesses (freedom of enterprise), firms compete with one another, and there is limited government intervention. Owners have an incentive to use their scarce resources as efficiently as possible because they are able to keep the profits they earn. Consumers ultimately determine 'what' goods and services are produced (consumer sovereignty), while producers decide 'how' to produce them in the most efficient and profitable way.
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"The castaway was a good example of this in action, though, in reality, consumers communicate their desires to producers through price signals, and producers only 'ration' the output to those consumers who are ;able' to pay the price, both of which require some sort of price mechanism."
--LIMITATIONS--
"Sounds pretty good, right? Limited resources are allocated to make the goods consumers want, but what if...?"
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"...the Castaway was actually a member of a 10-person party, but he was the only adult and thus the only one strong enough to extract the water. Do you think the distribution of the water would always be fair? Do you think everyone would be allowed to try and get the water out of the coconuts? What if one of the children were blind and another in a wheelchair, would they get anything?"
"See how quickly the owners of the most productive resources can dictate 'fairness'."
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"So potentially the Castaway could keep all the coconuts for himself, as he essentially owns the means of production, meaning those that can't contribute go without."
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--TASK--
"Explain how this is a limitation of the market system."
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"What if the castaway's quick disposal of the coconut shells and flesh over the nearest cliff meant that they rotted and created ideal breeding sites for mosquitoes and pests that spread disease amongst the other members? Do you think the Castaway would care? Do you think he would 'compensate' those bitten with extra water?"
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"Probably not, as he is too concerned about getting as much water as possible, as well as other priorities, so he only considers the time he saves. He ignores the costs imposed on everyone else and pays no compensation, as it's not like anyone will make him right?!"
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--TASK--
"Explain how this is a limitation of the market system."
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"What if the castaways created a giant SOS sign out of driftwood on the beach that needed constant maintenance because the tide regularly washed parts of it away? Everyone would benefit if a passing plane or ship spotted the sign and rescued them. However, maintaining it takes time and effort. Do you think each castaway might hope that someone else will spend their valuable time collecting and rearranging the driftwood instead? What would eventually happen?"
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"If everyone thought this way, the SOS sign would eventually disappear, reducing the chances of rescue for everyone."
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--TASK--
"Explain how this is a limitation of the market system."
--1.4.2 RESOURCE ALLOCATION & ECONOMIC SYSTEMS--
--1.4.2 RESOURCE ALLOCATION & ECONOMIC SYSTEMS--
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