Essay on Mixed Market vs. Central Planning

The key difference between mixed market and central planning economy is the degree of autonomous control (Johnson, 2014). That said, in central planning, the economy controls are centrally assigned to an individual agency which is mandated with controlling production. Moreover, all ventures converge to produce government-distributed products (Hodgson, 2017). However, in a centrally planned economy, there is an advantage of the low unemployment rate and needs hardly go unfulfilled. Similarly, the centrally planned economy is majorly disadvantaged by inefficiencies and low growth rate.

Alternatively, in mixed market economies, the governments own only a few mean of production. Additionally, the governments come in a legal capacity to replace, limit, or present regulatory services that are directed to the economic interest of the private sector (Johnson, 2014). Unlike the socialist-dominated centrally planned economy, mixed market economies involve both socialism and capitalism (Hodgson, 2017). Moreover, this system is more efficient than the centrally planned market economy and less efficient than capitalism market economies.

Specific Problems in Central Planning

Specific problems related to centrally planned economy include has caused shortages as well as surpluses for countries that employed such a system before. Moreover, because of the government control witnessed in centrally planned economies, it is very rare for the market to witness surplus production (Johnson, 2014). Moreover, the controls that are imposed in the centrally planned economies expose the market to frequent chronic shortages (Hodgson, 2017). Additionally, the centrally planned economy has less concern for unemployment issues because they are well catered for by the controls set by the government.

However, the major problem that stems from the government controls in the centrally-planned market economies is resource distribution inefficiencies, including labor and capital distributions (Hodgson, 2017). This problem is further aggravated by the need to determine infrastructure to establish, the level of production, advanced technology to adopt, and the suitable economy activity (Johnson, 2014). Rationalizing the distribution of the products also brings about a problem in this type of economy.

Causes of Market Failure in Competitive Markets

Market failure in a competitive market is as a result of various causes include positive and negative externalities, insufficient public goods, over-provision of the demerit goods and under-provision of the merit goods, environmental concerns as well as abuse of the monopoly power (Sjostrand, 2016). Additionally, the negative spillover effect, underproduction and over-provision of merit goods could lead to market failures (Lubienski & Lubienski, 2016). However, some of the most common market failure causes are imperfect markets, incomplete markets, common property resources, indivisibilities, externalities, asymmetric information, public bads and public goods (See Appendix).

Examples of Government Intervention

Market failures are as a result of failing to account for externalities. Thus, intervention by the government for both positive externality and negative externality can increase efficiency within the market, which would have failed in a competitive market case. Moreover, the government introduces taxes that are imposed on production to create negative externality or external cost (Sjostrand, 2016). This shifts the supply curve in the downward by the taxes amounts while the production level cuts down to an efficient level (Lubienski & Lubienski, 2016). Similarly, the government gives out subsidies as positive externalities which cause the supply curve to shift upward enabling the consumer to purchase the efficient quantity.

References

Hodgson, G. M. (2017). Karl Polanyi on economy and society: a critical analysis of core concepts. Review of Social Economy, 75(1), 1-25.

Johnson, N. (2014). Mixed Economies Welfare. Routledge.

Lubienski, C. A., & Lubienski, S. T. (2016). Reconsidering choice, competition, and autonomy as the remedy in American education. Learning from the Federal Market? Based Reforms: Lessons for ESSA, 365.

Sjostrand, S. E. (Ed.). (2016). Institutional change: theory and empirical findings. Routledge.

Appendix: Causes of Externalities

Figure 18.4: Negative externalities of consumption as a cause of market failure