Abject poverty is without question the major economic problem of the world. This has always been so, but it has become the focus of great concern for nations and for large numbers of persons in recent years. To understand its causes and achieve its possible alleviation, an understanding of the nature of economics and economic activity is necessary. | Chapter 2 Economic Systems, Resource Allocation, and Social Well-Being: Lessons From China’s Transition Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Economic Systems Pure Market Economy Private property rights Decentralized decision making coordinated through markets Pure Command Economy State ownership and/or control of economic resources Centralized planning Mixed Systems Transitional economy 2- Resource Allocation in a Market Economy Market Structure Purely Competitive Markets Large number of buyers and sellers Each seller offers standardized product Product prices free to move up or down Buyers and sellers must be mobile Freedom of entry and exit Purely Monopolistic Markets One seller Imperfectly Competitive Markets 2- Demand 5 10 15 20 .50 Price$ Quantity Price ($) Quantity (Six-Packs per Week) $ 1,500 1,00 500 D D Law of Demand Other Things Being Equal 2- Click 1: Plot $ Click 2: Plot $ Click 3: Plot $ Click 4: Demand curve Click 5: Law of Demand Click6: Other Things Being Equal Quantity Demanded versus Demand 5 10 15 20 .50 Quantity D D D2 D2 D1 D1 Consumer Income Prices of Related Goods Substitutes Complements Tastes Expectations Number of Consumers Price $ 2- Click 1: Textbox Click 2: D1 Click 3: D2 Supply 250 500 750 20 5 10 15 20 Quantity Price ($) Quantity (Cars per year) $5,000 250,000 10,000 500,000 15,000 750,000 S S Price $ 2- Click1: Plot $5,000 Click 2: Plot $10,000 Click 3: Plot $15,000 Click 4: Plot Supply curve Quantity Supplied versus Supply 250 500 750 20 5 10 15 20 Quantity S S S1 S1 S2 S2 Cost of Production Prices of Related Goods Seller’s Expectations Number of Sellers Price $ 2- Click 1: Textbox Click 2: S1 Click 3: S2 Equilibrium 5 6 7 8 9 10 5 6 7 8 9 Price $ Quantity 3 4 D D S S Surplus Shortage 2- Click 1: Price line at $8 Click 2: Surplus Click 3: Price line at $5 Click 4: Shortage Resource Allocation in a Command Economy Centralized Planning The Communist Revolution in China Establishment of a Command Economy Problems with Centralized Planning Initial Phase Great Leap Forward State Planning Commission Cultural Revolution 2- Shortcomings of Central Planning Informational Requirements Incentives for Efficient Production Heavy Industry versus Consumer Goods 2- China’s Transition to a Market-Oriented Economy Agricultural Reform Industrial Reform Lessons for Other Economies 2- China’s Transition to Markets: What Are the Facts? China’s Comparative Economic Performance Since Reform Real GDP Crop Production China China South Korea South Korea Singapore Singapore Vietnam Vietnam Low-income Low-income United States United States Real Per Capita GDP Industrial Production China China South Korea South Korea Singapore Singapore Vietnam Vietnam Low-income Low-income United States United States 2- Problems of Transition in China Unemployment and inflation Corruption Population pressures Pollution problems The desire for democracy 2-
