Ariele Jondy C. Bumagat III-BSA 1. How does economic system come about?

Karl Marx's theory of economic development was based on the premise of evolving economic systems; specifically, over the course of history superior economic systems would replace inferior ones. Inferior systems were beset by internal contradictions and inefficiencies that make them impossible to survive over the long term. In Marx's scheme, feudalism was replaced by capitalism, which would eventually be superseded by socialism.[2] Joseph Schumpeter had an evolutionary conception of economic development, but unlike Marx, he de-emphasized the role of class struggle in contributing to qualitative change in the economic mode of production. In subsequent world history, Communist states run according to Marxist-Leninist ideologies have either collapsed or gradually reformed their centrally-planned economies toward market-based economies, for example with perestroika and the dissolution of the Soviet Union, Chinese economic reform, and i Miin Vietnam. Mainstream evolutionary economics continues to study economic change in modern times. There has also been renewed interest in understanding economic systems as evolutionary systems in the emerging field of Complexity economics.

2. Describe 3 types of economic system. Market Economy

Market economies feature individuals who own and operate the means of production, and the state and national governments play a small role. The consumers and their subsequent buying decisions drive the economy. The right path for the economic development of the country is heavily based on the assumptions of the market, or supply and demand. Also referred to as free enterprise or capitalist systems, market economies rely upon the state to protect the consumer while simultaneously promoting competition in the market. Countries with market economies include the United States, Japan and Great Britain.

Command/Planned Economy

A command, or planned, economy is where the government makes all major decisions for the country related to production, service, distribution and commodity prices. The government owns and operates the factors of production; this type of economic system is often referred to as communism. Examples include the economies of China, Laos and Cuba. While this type of economy can result in slower reaction time to consumer needs because it is operated entirely by the government, it also allows for the use of all available resources for production development. A market economy uses available resources mainly for marketing and advertising.

Mixed Economy

Mixed economies have elements of both planned and market economies in one cohesive system. This system is popular in countries where neither business corporations nor the government controls the country's economic activities. Mixed economies are described as having government regulation in some areas and flexibility in others. According to Economy Watch, mixed economies result when a society looks to find balance when the people enjoy a wide range of social and political views. 3. What is the most serious limitation of market economy? A further major limitation of economic markets is that they satisfy the needs only of those who have money. Markets have an extraordinary ability to efficiently meet the needs and desires of those who have purchasing power. But they will provide absolutely nothing to those who have none. If you do not have sufficient money to buy the food you need to live, the market will do nothing to help you as you starve to death. If you have a curable but potentially fatal illness, and do not have the money to pay for a cure, the market will let you die. Markets do nothing to stop millions dying in these circumstances around the world every year, even though there are enough resources to prevent their deaths. 4. Give advantages and disadvantages a. Market System Advantages: Free market responds quickly to the peoples wants: Thus, firms will produce what people want because it is more profitable whereas anything which is not demanded will be taken out of production. Wide Variety of goods and services: There will be wide variety of goods and services available in the market to suit everybodys taste. Efficient use of resources encouraged: Profit being the sole motive, will drive the firms to produce goods and services at lower cost and more efficiently. This will lead to firms using latest technology to produce at lower costs. Disadvantages: Unemployment: Businesses in the market economy will only employ those factors of production which will be profitable and thus we may find a lot of unemployment as more machines and less labour will be used to cut cost. Certain goods and services may not be provided: There may be certain goods which might not be provided for by the Market economy. Those which people might want to use but dont want to pay

may not be available because the firms may not find it profitable to produce. For example, Public goods, such as, street lighting. Consumption of harmful goods may be encouraged: Free market economy might find it profitable to provide goods which are in demand and ignore the fact that they might be harmful for the society. Ignore Social cost: In the desire to maximise profits businesses might not consider the social effects of their actions. b. Command System Advantages: Because a planned economy or command economy is fully controlled by the government, it is less subject to inflation and downturn than other types of economies. The focus of a planned economy is usually on the benefits of the country as a whole and the citizens therein. Planned economies or command economies can also more equally distribute wages, bonuses, materials and services rather than focusing on the wealth and opportunity of select individuals. Because this type of economy is planned out by governmental agencies, it can take into account the resources available and attempt to utilize them to their fullest potential. When a planned economy or command economy is used to benefit citizens equally and to provide necessary resources to all, it can increase morale among citizens. Disadvantages: In order to function well, requires an enormous amount of information which is difficult to obtain. No real incentive for individuals to be innovative. Goods are of poor quality since there is a lack of profit motive. May not lead to allocative efficiency or productive efficiency due to lack of competition and profit motives. Corruption the government has the ability to abuse its absolute power. The economy does not respond as well to supply and demand, firms are simply told to produce a certain number of goods or services. c. Traditional Advantages: traditional economy is that this type of economics produces only those goods and services which are required for the survival or which they want to consume. Hence there is no surplus or wastage and hence it does not waste resources for goods and services which are unnecessary. In this economy people know exactly what their roles or job is and hence there is no duplication of effort.

Disadvantages: Resist any changes because they tend to think that methods and procedures which are followed by their ancestors for generations are correct and hence which in turn leads to lower productivity thus leading to lower development of the society or country as a whole. Due to this lower productivity people have lower standard of living than other economies which does not follow traditional economics. In this type of economies people have to do job which they are told to do but which they dont like and hence it also lowers their productivity.

d. Mixed Advantages: Since mixed economy involves both government and private enterprises it has the advantage of taking the benefits of capitalist nature of private companies and socialist nature of government. There is less inequality of income because intent of government is to have a balanced economic growth of an economy. Mixed economy allows individuals to run their business and make profits but at the same time it places some responsibility on these companies by inducing them to contribute towards the welfare of society. Disadvantages: Since welfare of society is important in a mixed economy it leads to lower than optimum use of the resources because government mobilize the resources towards the production of those goods and services which are beneficial for the society as a whole rather than producing those goods and services which in economic terms are more beneficial for an economy. Under mixed economy private enterprises have to face lot of difficulty because of various government loopholes like favoritism and bureaucratic nature which is prevalent in mixed economy.

5. What is the root idea of Mark Philosophy?

Marx himself considered his theory of surplus-value his most important contribution to the progress of economic analysis (Marx, letter to Engels of 24 August 1867). It is through this theory that the wide scope of his sociological and historical thought enables him simultaneously to place the capitalist mode of production in his historical context, and to find the root of its inner economic contradictions and its laws of motion in the specific relations of production on which it is based. This means that Marxs theory of surplus-value is basically a deduction (or residual) theory of the ruling classes income. The whole social product (the net national income) is produced in the course of the process of production, exactly as the whole crop is harvested by the peasants. What happens on the market (or through appropriation of the produce) is a distribution (or redistribution) of what already has been created. The surplus product, and therefore also its money form, surplus-value, is the residual of that new (net) social product (income) which remains after the producing classes have received their compensation (under capitalism: their wages). This deduction theory of the ruling classes income is thus ipso factor an exploitation theory. Not in the ethical sense of the word - although Marx and Engels obviously manifested a lot of understandable moral indignation at the fate of all the exploited throughout history, and especially at the fate of the modern proletariat - but in the economic one. The income of the ruling classes can always be reduced in the final analysis to the product of unpaid labour: that is the heart of Marxs theory of exploitation.