Markets, Efficiency, and Price signals

A centrally planned economy, also known as a command economy, is an economic system in

which a central authority, such as a government, makes economic decisions regarding the
manufacturing and the distribution of products. The problem with this type of economy is that is
inefficient.

The main types of efficiency are:

 Productive efficiency: products are being made at the lowest possible cost
 Allocative efficiency: production represents consumer preferences

So, central planners are less likely to be allocatively efficient because they have harder times
getting feedback about what people want.

For instance, free market allows the producers to do what they want with their products. An
important tool for producers, are prize signals. Which show how many people are willing to pay
for something, and if it is worth It producing more of it.

Any market isn’t perfect, they should coexist.

There is also a dark side of market management:

 Prize gouging: when sellers raise prizes for essential items to a much higher level than
what is considered reasonable
 Predatory pricing: when a producer lowers the cost of a product, in a way that the
competence cannot sustain those prizes and gets eliminated.