ECONOMI

CS(
P220)

BACKGROUNDTOTHESUBJECTOFECONOMI
CS

Thepapercodef
ort
hesubj
ecti
sP220.

Thesubj
ectconsi
stsoft
wopaper
si.
e.Economi
cspaperone(
P220/
1)andEconomi
cs
papert
wo(
P220/
2).

ECONOMI
CSPAPERONE(
P220/
1)

Thi
spapert
est
sthecandi
dat
es’
under
standi
ngoft
hebasi
ceconomi
cpr
inci
ples.

Thequest
ionsseti
nthi
spaperar
eopenandusual
l
ydemandf
oranswer
swhi
chcan
appl
yinanycount
ry.Thequest
ionsusual
l
yendwi
tht
hephr
ase“
inaneconomy
”.

ECONOI
CSPAPERTWO(
P220/
2)

Thi
spapert
est
sthecandi
dat
es’under
standi
ngoft
heappl
i
cat
ionoft
heeconomi
c
pr
inci
ples.

Thi
spaperconcent
rat
esonexami
ningeconomi
csasi
tappl
i
est
oUgandai
npar
ti
cul
ar.

Whenanswer
ingquest
ionsi
npaper2;

- Payal
otofat
tent
iont
othet
enseusedi
nthequest
ion

- Donotuseaspecul
ati
vel
anguagei
.e.av
oidusi
ngwor
dsl
i
kewi
l
landshal
l
.

Thedur
ati
onofeachpaperi
s3hour
s.

Eachpaperhast
wosect
ionsi
.e.Sect
ionAandSect
ionB.

SECTI
ONA

Sect
ionAhasonecompul
sor
yquest
ionhav
ingf
ivepar
ts(
a–e)eachcar
ryi
ng4mar
ks
maki
ngat
otal
of20mar
ks.

Answer
stot
hissect
ionshoul
dbeconci
seandpr
eci
se.

CSMADEEASYbyKi
ECONOMI gongoJi
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Page1
 SECTI
ONB

Sect
ionBconsi
stsof6essayt
ypequest
ionseachcar
ryi
ng20mar
ksoutofwhi
cha
st
udenti
srequi
redt
oat
temptonl
yfourquest
ionsmaki
ngat
otal
of80mar
ks.

THECOURSEOUTLI
NE(
TOPI
CSTOBECOVERED)

1.I
ntr
oduct
iont
oeconomi
cs

2.Pr
icet
heor
y

3.Pr
oduct
ion

4.Nat
ional
income

5.Economi
cgr
owt
handdev
elopment

6.Moneyandbanki
ng

7.Popul
ati
on,
labourandwages.

8.Unempl
oyment

9.St
ruct
ureofUganda’
seconomy

10.
Publ
i
cfi
nanceandf
iscal
pol
i
cy

11.
Int
ernat
ional
trade

12.
Inf
lat
ion

13.
Economi
cdev
elopmentpl
anni
ng

I
NTRODUCTI
ONTOECONOMI
CS

Economi
cscent
ersonhow humanbei
ngscanmaket
hebestuseoft
heav
ail
abl
e
scar
cer
esour
cest
osat
isf
ythecompet
ingends(
needs)
.Economi
csdeal
swi
tht
he
way
sinwhi
chpr
oduct
ionanddi
str
ibut
ionchangeov
ert
ime.Ther
efor
eiti
stheuse

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page2
(
all
ocat
ion)and or
gani
zat
ion ofr
esour
ces t
hatconst
it
utet
he subj
ectmat
terof
economi
cs.

DEFI
NITI
ONOFECONOMI
CS

Ther
ear
emanydef
ini
ti
onsofeconomi
csasputf
orwar
dbydi
ff
erenteconomi
stsamong
whi
char
ethef
oll
owi
ng;

1.Pr
ofessorAl
fr
edMar
shaldef
ineseconomi
csasast
udyofmanki
ndi
nanor
dinar
y
busi
nesswayofl
i
fe.Thi
smeanst
hatt
hesubj
ecti
sconcer
nedwi
tht
hest
udyofhow
manl
i
ves,
mov
esandt
hinksi
nanor
dinar
ybusi
nesswayofl
i
fe.

2.Pr
ofessorA.
C.Pi
goudef
ineseconomi
csasameansofhowt
oincr
easepr
oduct
ion
i
nor
dert
orai
sepeopl
e’
sst
andar
dsofl
i
ving.

3.Thecl
assi
caleconomi
stsl
edbyAdam Smi
thdef
ineeconomi
csast
hesci
enceof
accumul
ati
onofweal
th.Thi
smeanst
hateconomi
csasasubj
ecti
sconcer
nedwi
th
t
hewaypeopl
eandt
henat
ionbecomer
ich.Howev
er,t
hisdef
ini
ti
onhasbeen
cr
it
ici
zedf
orbei
ngnar
row becausei
tdoesnotaddr
esst
hemai
npr
obl
em f
aci
ng
mani
.e.scar
cit
yofr
esour
ces.

4.Economi
stLi
onelRobbi
nssai
din1935t
hat“
Economi
csi
sasoci
alsci
encet
hat
st
udi
eshumanbehav
iourasar
elat
ionshi
pbet
weenendsandscar
cemeanswhi
ch
hav
eal
ter
nat
iveuses.

NOTE
Byt
het
erm ends,
wer
efert
ohumanneeds(
endl
essdesi
resofman)
Byt
het
erm scar
cemeans,
wer
efert
oinadequat
eresour
ces.

WHYROBBI
NSDEFI
NITI
ONI
SPREFERRED
Robbi
nsdef
ini
ti
oni
sthemostwi
del
yaccept
abl
edef
ini
ti
onofeconomi
csbecausei
t
car
ri
est
hreemai
nimpor
tantf
act
orsi
neconomi
canal
ysi
si.
e.keyeconomi
cissues
f
aci
ngmanandcount
ri
es.

1.I
trecogni
zest
hathumanneedsar
eunl
i
mit
ed(
endl
ess)

CSMADEEASYbyKi
ECONOMI gongoJi
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Page3
2.Ther
esour
cest
osat
isf
ytheunl
i
mit
edhumanwant
sar
escar
ce.

3.Thescar
cer
esour
ceshav
egotal
ter
nat
iveusesandt
hust
her
eisneedt
omaket
he
r
ightchoi
ceswhenal
l
ocat
ingr
esour
ces.

Thedef
ini
ti
onal
sor
ecogni
zeseconomi
csasasoci
alsci
encei
.e.i
tdeal
swi
tht
hatpar
t
ofeconomi
cact
ivi
tywhi
chi
sconcer
nedwi
tht
hesat
isf
act
ionoft
hemat
eri
alneeds.

ECONOMI
CSASASCI
ENCEANDSOCI
ALSCI
ENCE

Economi
cshasel
ement
sthatmakei
tasci
encedi
sci
pli
neandt
hesei
ncl
ude;

- I
tisbasedonf
act
sinr
eal
li
fe.

- I
tisr
esear
chbasedi
.e.i
tmakesexper
iment
stopr
ovecer
tai
nthi
ngs.

- I
tdev
elopst
heor
ies,
pri
nci
plesandl
aws.

- I
tmakessci
ent
if
icobser
vat
ions.

Economi
csal
sohasel
ement
swhi
chqual
i
fyi
ttobeasoci
alsci
ence.Thesei
ncl
ude;

- I
tisbasedonv
aluej
udgementi
.e.peopl
es’
opi
nions

- I
tisdy
nami
ci.
e.i
tchangesdependi
ngont
hesoci
alandpol
i
tical
condi
ti
ons.

- I
tisbasedonhumanr
easoni
ngandhumansat
isf
act
ion.

ASSUMPTI
ONSI
NECONOMI
CS

I
tis notpossi
blet
oisol
atet
he pr
obl
ems i
n an economy
.Economi
sts make
assumpt
ionst
oenabl
ethem st
udyt
hebehav
iourofanaspect
/phenomenonandhence
dr
awconcl
usi
onsorpr
edi
cti
onswhenev
ert
her
eisachangei
nonev
ari
abl
e.Economi
sts
uset
het
erm“
Cet
eri
spar
ibus.
”Thi
sisaLat
inwor
dwhi
chst
andsf
or“
otherf
act
orshel
d
const
ant
.”

ECONOMI
CCONCEPTS

1.ECONOMI
CTHEORY

CSMADEEASYbyKi
ECONOMI gongoJi
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Page4
Thi
sisabodyofconcept
sandpr
inci
pleswhi
chhel
pusunder
stand/
expl
ainandmake
pr
edi
cti
onsi
neconomi
cs.I
tisdi
vi
dedi
ntot
womaj
orpar
ts;

a)Mi
croeconomi
cs.

Mi
croeconomi
csi
sabr
anchofeconomi
cst
hatdeal
swi
tht
heeconomi
cbehav
iour
ofsmal
luni
ts.Thepr
efi
xmi
crocomesf
rom t
heGr
eekwor
d“Mi
kros”whi
chmeans
smal
l
.Somi
croeconomi
csdeal
swi
tht
hebehav
iourofi
ndi
vi
dualeconomi
cagent
s
l
i
keconsumer
s,pr
oducer
sandr
esour
ceowner
s.

b)Macr
oeconomi
cs.

Macr
oeconomi
csi
sthebr
anchofeconomi
cst
hatst
udi
est
heeconomyasawhol
e.
I
tassumest
hatt
heeconomyi
sasi
ngl
efunct
ioni
nguni
tandanydeci
sionmade
af
fect
sal
leconomi
cuni
ts.I
tdeal
swi
tht
hebehav
iourofeconomi
caggr
egat
essuch
asunempl
oyment
,inf
lat
ion,aggr
egat
edemandandsuppl
y,nat
ionali
ncome,publ
i
c
f
inanceandf
iscal
pol
i
cy,
economi
cdev
elopmentpl
anni
ng,
etc.

2.STATEMENTSI
NECONOMI
CS

a)POSI
TIVESTATEMENT

I
neconomi
cs,aposi
ti
vest
atementconcer
nswhat“
is”
,“was”or“
wil
lbe”andcont
ains
noi
ndi
cat
ionofappr
ovalordi
sappr
oval
.(Whatshoul
dbe)
.Posi
ti
vest
atement
sar
e
t
est
abl
eoratl
easti
tispossi
blet
oimagi
nef
act
sthatdi
sappr
ovet
hem.Exampl
esof
posi
ti
vest
atement
sincl
ude;

i
. Themooni
smadeofbl
ackandgol
dcheese.(
Thi
sisempi
ri
cal
l
yfal
sebuti
sst
il
l
aposi
ti
vest
atementasi
tisast
atementaboutwhati
sandnotwhatshoul
dbe.

i
i
. Thepr
iceofsugari
shi
ghcompar
edt
owhati
twasl
asty
ear
.

i
i
i. I
fthegov
ernmentr
aisest
het
axonbear
,thi
swi
l
lleadt
oaf
alli
nthepr
ofi
tsof
br
ewer
s.

CSMADEEASYbyKi
ECONOMI gongoJi
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Page5
b)NORMATI
VESTATEMENT

A nor
mat
ivest
atementexpr
essesav
aluej
udgementaboutwhet
herasi
tuat
ioni
s
subj
ect
ivel
ydesi
rabl
e orundesi
rabl
e.I
tconcer
ns “
Whatoughtt
o be.
”Nor
mat
ive
st
atement
sar
echar
act
eri
zedbyt
hemodalv
erbs“
shoul
d”,
“woul
d”or“
coul
d”.Exampl
es
ofnor
mat
ivest
atement
sincl
ude;

i
. Thewor
ldwoul
dbeabet
terpl
acei
fthemoonwer
emadeofgr
eencheese.

i
i
. Thepr
iceofmi
l
kshoul
dbeShs.1500agal
l
ont
ogi
vedai
l
yfar
mer
sahi
gher
l
i
vingst
andar
d.

i
i
i. Thegov
ernmentshoul
dincr
easet
hemi
nimum waget
oShs.500,
000t
oreduce
pov
ert
y.

3.THETHREEFUNDAMENTAL(
BASI
C)ECONOMI
CPRI
NCI
PLES(
PROBLEMS)

a)Scar
cit
y

Scar
cit
yref
erst
othel
i
mit
edsuppl
yofeconomi
cresour
cesi
nrel
ati
ont
opeopl
es’
r
equi
rement
s/want
se.
g.t
her
eisscar
cit
yofl
and,scar
cit
yoft
rai
nedl
abour
,scar
cit
y
oft
rai
nedent
repr
eneur
s,scar
cit
yofcapi
tal
,et
c.

Thepr
obl
em ofscar
cit
yisconsi
der
edt
obet
hemostf
undament
alpr
obl
em andi
t
gi
vesr
iset
otheot
hert
wo.

b)Choi
ce

Choi
cei
sdef
inedast
hemaki
ngoft
hebestdeci
sionoutoft
heav
ail
abl
eal
ter
nat
ives.

Becauseofscar
cit
yofr
esour
ces,
manmustmakeascal
eofpr
efer
ence.

Ascal
eofpr
efer
encei
sal
i
stofwant
sar
rangedst
art
ingwi
tht
hemostpr
essi
ng
needsandendi
ngwi
tht
hel
eastpr
essi
ngones.

Whent
heconsumerchoosest
hef
ir
sti
tem,
second,
thi
rdandsoon,
hei
ssai
dtobe

CSMADEEASYbyKi
ECONOMI gongoJi
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Page6
 maki
ngachoi
ce.

I
mpor
tanceofchoi
ce

 Gui
despr
oducer
sonwhatgoodst
opr
oduceandi
nwhatquant
it
y.

 Gui
despr
oducer
sonhowt
opr
oducev
ari
ousgoodsandser
vices.

 Gui
despr
oducer
sonhowt
odi
str
ibut
ethegoodsandser
vices.

 Gui
desconsumer
swhenmaki
ngconsumpt
ionpl
ans.

c)Oppor
tuni
tycost
/Tr
adeof
fcost
/Al
ter
nat
ivecost
/Real
cost

Oppor
tuni
tycosti
sthesecondbestal
ter
nat
ivef
oregonewhenchoi
cei
smade.

Oppor
tuni
tycostar
isesoutofscar
cit
yandchoi
ce.Whenaconsumerusesascal
eof
pr
efer
encet
omakechoi
ce,
iti
mpl
i
est
hathei
smaki
ngadeci
siont
osat
isf
yoneset
ofwant
s.Thi
snecessar
il
ymeanssacr
if
ici
ngsomeot
herset
.Iti
sbecauseoft
he
consumer
’sl
i
mit
edr
esour
ces(
income)t
hathechoosescommodi
tyAandl
eav
esB
f
ort
hemeant
ime.Bymaki
ngchoi
cet
her
efor
e,hei
ssacr
if
ici
ngcommodi
tyBf
orA.
I
tist
hissacr
if
icet
hati
sref
err
edt
oasoppor
tuni
tycosti
neconomi
cs.

USES/
IMPORTANCEOFTHECONCEPTOFOPPORTUNI
TYCOSTI
NECONOMI
CS

 I
tgui
despr
oducer
sinr
esour
ceal
l
ocat
ion/maki
ngpr
oduct
iondeci
sions.Thati
s
whatt
opr
oduce,whent
opr
oduce,how t
opr
oduce,wher
etopr
oduceandf
or
whom t
opr
oduce.

 I
thel
psconsumer
sinmaki
ngconsumpt
iondeci
sionsi
.e.consumer
schoose
commodi
ti
est
haty
iel
dmaxi
mum ut
il
it
y.

 Theconcepti
susedi
npr
ici
ngf
act
orsofpr
oduct
ione.
g.wor
ker
sthatapr
oducer
cannotdowi
thoutar
epai
dhi
ghwagesbecauset
heycr
eat
eaheav
yoppor
tuni
ty
costwhent
heyar
emi
ssi
ng.

 The concepti
s used when speci
ali
zi
ng i
nint
ernat
ionalt
rade.I
tis used i
n
i
nter
nat
ionalt
radeundert
hepr
inci
pleofcompar
ati
vecostadv
ant
agewher
ebya

CSMADEEASYbyKi
ECONOMI gongoJi
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Page7
 count
ryspeci
ali
zesi
nthepr
oduct
ionofacommodi
tywher
eithast
hel
east
oppor
tuni
tycost
.

 I
tisabasi
sofeconomi
cpl
anni
ng.Gov
ernmentpl
anner
sal
way
slookatt
he
second best al
ter
nat
ivef
oregone dur
ing t
he pl
anni
ng pr
ocess.E.
g.t
he
gov
ernmentcanspendmor
emoneyonpr
ovi
dingbasi
cser
vicesl
i
keuni
ver
sal
educat
iont
hanonr
ecr
eat
ional
faci
l
iti
esl
i
kespor
tsst
adi
a.

 I
thel
pswor
ker
stomakeempl
oymentdeci
sions.Thati
swhet
hert
owor
korenj
oy
l
eisur
e.

ASSI
GNMENT

Underwhatci
rcumst
ancesmayt
heoppor
tuni
tycostpr
inci
plebeappl
i
ed i
n
economi
cs?

(
04mar
ks)

LI
MITATI
ONSOFTHECONCEPTOFOPPORTUNI
TYCOST

 I
tisbasedont
heassumpt
iont
hatpr
oducer
sandconsumer
sar
erat
ional
whi
chi
snotal
way
str
ue.Manypr
oducer
sandconsumer
sar
enotgui
dedbya
cal
cul
ati
ngmi
nd.Theysi
mpl
ypr
oduceorconsumewi
thoutl
ooki
ngatt
he
oppor
tuni
tycost
.

 I
tlacksuni
for
mit
ybecausedi
ff
erentpeopl
ehav
edi
ff
erentpr
ior
it
ies.

 Oppor
tuni
tycostdoesnothav
eamonet
aryv
alueandt
her
efor
eiti
sver
yhar
d
t
oat
tachamoneyv
aluet
oit
.

 Some f
act
ors ofpr
oduct
ion ar
e speci
fi
cint
hatt
heycannotbe putt
o
al
ter
nat
iveuses.

 Theconceptassumesper
fectmar
ket
swhi
chnotexi
stenti
nther
eal
wor
ld.

 I
tisnotappl
i
cabl
einsi
tuat
ionswher
efact
ori
mmobi
l
ityexi
sts.

RELATI
ONSHI
PBETWEENSCARCI
TY,
CHOI
CEANDOPPORTUNI
TYCOST

CSMADEEASYbyKi
ECONOMI gongoJi
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Page8
Duet
oscar
cit
yofr
esour
ces,onehast
omakeachoi
ceoutoft
hemanyal
ter
nat
ives,
l
eav
ingsomeneedsunsat
isf
ied,
henceoppor
tuni
tycost
.

4.THE PRODUCTI
ON POSSI
BILI
TY FRONTI
ER/ CURVE (
PPF/
PPC) /
TRANSFORMATI
ONCURVE/OPPORTUNI
TYCOSTCURVE

The PPF/
Cref
erst
oal
ocus ofpoi
nts showi
ng v
ari
ous combi
nat
ions oft
wo
commodi
ti
es t
hatcan maxi
muml
y be pr
oduced when al
lthe count
ry’
s av
ail
abl
e
r
esour
cesar
eful
l
yandef
fi
cient
lyut
il
ized.

ASSUMPTI
ONSOFTHEPPF/
C

 Assumes onl
ytwo commodi
ti
es bei
ng pr
oduced e.
g.capi
talgoods and
consumergoods.

 Assumesacl
osedeconomy
.

 Assumesf
ull
empl
oymentofr
esour
ces.

 Assumesconst
antt
echnol
ogy
.

 Assumesper
fectmobi
l
ityoff
act
orsofpr
oduct
ion.

 Pr
oducer
sar
eassumedt
ober
ati
onal
int
hei
rpr
oduct
iondeci
sions.

I
LLUSTRATI
ONOFTHEPPF/
C

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page9
Poi
nts al
ong t
he PPF/
C show t
he maxi
mum amountofbot
h capi
talgoods and
consumergoodst
hatcanbepr
oducedusi
ngal
ltheav
ail
abl
eresour
cesi
.e.ef
fi
cient
ut
il
izat
ionofr
esour
ces.

I
fal
lresour
cesar
edev
otedt
othepr
oduct
ionofcapi
talgoods,t
heeconomy
/count
ry
wi
l
lhav
eamaxi
mum ofKoandnoconsumergoods.

I
fal
lresour
cesar
edev
otedt
othepr
oduct
ionofconsumergoods,t
heeconomywi
l
l
hav
eamaxi
mum ofCo¬andnocapi
tal
goods.

Howev
er,bot
hcommodi
ti
esar
eneededi
nthesoci
etyt
hust
hesoci
etyorpr
oducer
woul
ddeci
deonhow muchofeachcommodi
tyi
stobepr
oduced.Thesoci
etycan
ei
therpr
oduceatpoi
ntA(
mor
ecapi
talgoodsandl
essconsumergoods)oratpoi
ntC
(
mor
econsumergoodsandl
esscapi
talgoods)oratpoi
ntB(
sameamountofcapi
tal
goodsandconsumergoods)
.

Al
ongt
hePPF/
C,soci
etycanpr
oducemor
eofonegoodbutonl
ybyr
educi
ngt
he
amount
spr
oducedoft
heot
hergood.Forexampl
emov
ingf
rom poi
ntAt
oC,mor
e
consumergoodsar
epr
oducedbutt
heamountpr
oducedofcapi
talgoodsi
sreduced.A
mov
ementf
rom onepoi
ntt
oanot
heral
ongt
hePPFcr
eat
esoppor
tuni
tycost
.
CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page10
Apoi
nti
nsi
det
hePPF/
C(Poi
ntD)r
epr
esent
sunderut
il
izat
ionofr
esour
ces(
excess
capaci
ty)
.

Apoi
ntout
sidet
hePPF/
C(poi
ntE)i
sdesi
rabl
ebutunat
tai
nabl
ebecauseofscar
cit
yof
r
esour
ces.

NOTE
Mov
ementoft
hePPF/
Cout
war
dsi
l
lust
rat
eseconomi
cgr
owt
handbet
terut
il
izat
ionof
r
esour
ces.

USEOFTHEPPF/
CTOEXPLAI
NTHEBASI
CECONOMI
CPRONCI
PLES
ThePPF/
Ccanbeusedt
oexpl
aint
heconcept
sofscar
cit
y,choi
ceandoppor
tuni
tycost
.
a)Scar
cit
y
Si
ncer
esour
cesar
escar
ce,mani
sfor
cedt
opr
oduceal
ongt
hePPF/
C.mancannot
pr
oducebey
ondt
hePPF/
Cusi
ngt
heav
ail
abl
eresour
cesandatconst
antt
echnol
ogy
.
b)Choi
ce
A choi
cehast
o bemadeconcer
ning how muchofeachcommodi
tyi
sto be
pr
oduced.Thesoci
etycandeci
det
opr
oduceonl
ycapi
talgoodsoronl
yconsumer
goodsoracombi
nat
ionoft
het
wo.
c)Oppor
tuni
tycost
Al
ongt
hePPF/
C,i
fsoci
etychoosest
opr
oduceatpoi
ntAr
athert
hanpoi
ntB,t
hen
t
hev
alueoft
hecombi
nat
ionatpoi
ntBbecomest
heoppor
tuni
tycost
.
NOTE
Forusesoft
hePPF/
C,r
efert
otheusesoft
heoppor
tuni
tycostconcept
.

ASHI
FTI
NTHEPPF/
C
ThePPF/
Ccanei
thershi
ftt
othel
eft(
inwar
dly
)ort
other
ight(
out
war
dly
).
I
LLUSTRATI
ON

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page11
Suchashi
fti
scausedbyachangei
nfact
orst
hatf
avour
/di
sfav
ourpr
oduct
ionofbot
h
capi
tal
goodsandconsumergoods.
CAUSESOFTHEPPFTOSHI
FTOUTWARDS(
Par
ta)
)
 Di
scov
eryofnewnat
ural
resour
cese.
g.oi
ldeposi
ts.
 I
mpr
ovementi
ntechnol
ogy
.
 I
mpr
ovementi
nent
repr
eneur
shi
pski
l
ls.
 Theeconomybecomi
ngopenl
eadi
ngt
ocapi
tal
inf
low.
 Ani
ncr
easei
nthesi
zeoft
hel
abourf
orce.
 I
mpr
ovementi
ntheski
l
lsofwor
ker
s/i
ncr
easei
ntheef
fi
ciencyofwor
ker
s
 I
ncr
easei
nthel
evel
ofcapi
tal
stock.
 Pol
i
tical
cli
mat
ebecomi
ngf
avour
abl
e
 I
mpr
ovementi
ntheexi
sti
ngi
nfr
ast
ruct
ures.

CAUSESOFTHEPPFTOSHI
FTI
NWARDS(
Par
tb)
)
 Depl
eti
on/exhaust
ionofnat
ural
resour
ces
 Decl
i
nei
nthel
evel
oft
echnol
ogy
.
 Reducedent
repr
eneur
shi
pabi
l
ity
 I
ncr
easedcapi
tal
out
fl
ow.
 Decr
easei
nthesi
zeoft
hel
abourf
orce.
 Decr
easei
ntheski
l
lsofwor
ker
s/decr
easei
nwor
ker
sef
fi
ciency

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page12
  Decr
easei
nthel
evel
ofcapi
tal
stock.
 Pol
i
tical
cli
mat
ebecomi
ngunf
avour
abl
e.
 Dest
ruct
ionoft
heexi
sti
ngi
nfr
ast
ruct
ures.
NOTE
Forf
act
orst
hatcauseashi
fti
nthePPF,
begi
nwi
tht
hewor
d“change”i
nal
lyourpoi
nts.
Assi
gnment
Out
li
neanyf
ourf
act
orst
hatmaket
hePPFt
oshi
ft
.

ROTATI
ONOFTHEPPF
Thi
siscausedbyachangei
nfact
orst
hatf
avourpr
oduct
ionofonl
yonecommodi
ty.For
exampl
eift
heabov
ement
ionf
act
orssuchast
echnol
ogy
,nat
uralr
esour
ce,et
cchange
i
nfav
ourofcapi
tal
goods,
thePPFwi
l
lrot
ateasshowni
nthedi
agr
am bel
ow.

Ont
heot
herhandi
fthef
act
orschangei
nfav
ourofconsumergoods,
thePPFwi
l
lrot
ate
asshowni
nthedi
agr
am bel
ow.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page13
5.RESOURCES

Thesear
egoods/i
nput
soutofwhi
chmanpr
oducesgoodsandser
vicest
osat
isf
y
hi
swant
s.

OR

Resour
cesar
etangi
bleand i
ntangi
blet
hingsi
ncl
udi
ng humanl
abourt
hatman
makesuseoft
osat
isf
yhi
sunl
i
mit
edwant
s.

Exampl
esofhumanr
esour
cesi
ncl
udel
abourandent
repr
eneur
.

Resour
cesar
eal
soknownasf
act
orsofpr
oduct
ion,f
act
ori
nput
sormeansof
pr
oduct
ion.

Resour
cescanei
therber
enewabl
eornon-
renewabl
e.

Renewabl
eresour
cesar
ethoser
esour
ceswhi
chcanber
egener
atede.
g.f
orest
s.

Non-
renewabl
eresour
cesar
ethoser
esour
ceswhi
chcannotber
egener
atede.
g.
mi
ner
als.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page14
6.GOODS/COMMODI
TIES

Thesear
etangi
blei
temswhi
chsat
isf
yhumanwant
sdi
rect
lyl
i
kecl
othes.

TYPESOFGOODS

a)Pr
oducer
/capi
tal
/goods/goodsofsecondor
der
.

Thesear
egoodsusedbypr
oducer
stot
ransf
ormr
aw-
mat
eri
alsi
ntof
ini
shedgoods.
Thesegoodsar
eusedi
nthepr
oduct
ionofot
hergoods.Theysat
isf
yhumanwant
s
i
ndi
rect
lyf
orexampl
efact
orymachi
nes,
bui
l
dings,
rawmat
eri
als,
ovens,
blender
.

b)Consumer
/fi
nal
goods/goodsoff
ir
stor
der
.

Thesear
egoodswhi
char
emeantf
orf
inalusebyt
hef
inalconsumerandar
e
capabl
eofpr
ovi
dingdi
rectsat
isf
act
iont
oman’
swant
sE.
g.sal
t,soap,f
oodst
uff
s,
books,
clot
hes,
car
s,comput
er.

c)I
nter
medi
ategoods.

Thesear
egoodswhi
char
epr
oducedbuthav
enotr
eachedt
hei
rfi
nal
stageof
pr
oduct
ion.Thati
stheyst
il
lneedmor
epr
ocessi
ngi
nor
dert
oobt
ainaf
inal
goode.
g.
sugarcanesar
eint
ermedi
ategoodsi
nthemaki
ngofsugar
,sugari
nthemaki
ngof
sweet
s,wheatf
louri
nthemaki
ngofbr
ead.

d)Dur
abl
egoods.

Thesear
egoodswhi
char
ecapabl
eofgi
vi
ngal
ongt
erm ser
vicee.
g.bui
l
dings,
f
urni
tur
e,machi
nes,
tel
evi
sionset
,comput
ers.

e)Per
ishabl
egoods.

Thesear
egoodswhosecapaci
tyt
osat
isf
yhumanwant
sendsaf
terashor
tper
iod
oft
imei
.e.t
heygobadaf
terashor
tper
iodoft
imee.
g.v
eget
abl
es,br
ead,meat
,
chapat
ti
,mi
l
k.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page15
f
) Pr
ivat
egoods.

Ar
ethoseenj
oyedsol
ely
/excl
usi
vel
ybyani
ndi
vi
dualsucht
hatone’
sconsumpt
ion
excl
udesot
her
s.Anonownermustal
way
sseekper
missi
onf
rom t
heownerbef
ore
usi
ngt
hegoodE.
g.per
sonal
car
s,cl
othes,
houses,
lapt
ops,
text
books,
radi
o.

Char
act
eri
sti
csofpr
ivat
egoods

 Theyar
eexcl
udabl
ei.
e.owner
spr
eventt
hosewhohav
enotpai
dfori
tfr
om
usi
ngt
hegood/nof
ree–r
ider
s.

 Ther
eisr
ival
ryi
nthei
rconsumpt
ioni
.e.consumpt
ionbyonenecessar
il
y
pr
event
sthatofanot
her
.

 Theyi
nvol
vedi
rectpay
mentt
obeconsumed.

 Theyar
escar
cewhi
chcausescompet
it
ionf
ort
hem

g)Publ
i
cgoods.

Ar
ethosewhi
chwhenpr
ovi
ded,usual
l
ybyt
hest
ate,f
orapar
ti
cul
ari
ndi
vi
dualor
gr
oupofi
ndi
vi
dual
s becomeav
ail
abl
eforot
her
stouseatzer
oornoext
racost
s
andconsumpt
ionbyoneper
sondoesnotr
educet
heamountav
ail
abl
eforot
her
user
s.

Exampl
esofpubl
i
cgoodsi
ncl
udepubl
i
croads,nat
ionaldef
ence,l
aw andor
der
,
st
reetl
i
ght
s,publ
i
ccl
ocks,
publ
i
cschool
s,publ
i
chospi
tal
s.

Char
act
eri
sti
csofpubl
i
cgoods

 Non-
exhaust
ibi
l
ity
.Consumpt
ionbyoneper
sondoesnotr
educet
heamount
av
ail
abl
eforot
heruser
s.

 Non-
excl
udabi
l
ity
.Iti
sdi
ff
icul
ttost
opaper
sonf
rom consumi
ngpubl
i
cgoods
orf
rom get
ti
ngt
hebenef
it
sofpubl
i
cgoods.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page16
  Non-
div
isi
bil
i
ty(
Indi
vi
sibl
e).Theyar
eequal
l
yav
ail
abl
etoal
lindi
vi
dual
sint
he
soci
ety
.

 Usual
l
ypr
ovi
dedbyt
hest
ate.

 Theyar
eindi
rect
lypai
dfori
.e.t
hrought
axes.

 Nocompet
it
ionf
ort
hem (
Ther
eisnon-
ri
val
ryi
nthei
rconsumpt
ion)
.

h)Fr
ee/nat
ural
/or
igi
nal
goods.

Ar
ethosewhi
chexi
sti
nnat
ural
abundanceandar
eenoughf
orev
ery
onet
oconsume
asmuchast
heywantatzer
ocost
.E.
g.r
ainwat
er,
sunshi
ne,
moonl
i
ght
,soi
l
,ai
r,et
c.

Char
act
eri
sti
csoff
reegoods

 Theyar
epr
ovi
dedbynat
ure

 Theyar
einabundantsuppl
y.

 Theyar
econsumedatz
erocost
.

 Theypr
ovi
deut
il
it
y.

i
) Economi
cgoods.

Ar
egoodst
hatar
escar
ceandf
oronet
oconsumet
hem,
acosthast
obei
ncur
red.

OR

Ar
egoodst
hatar
iseoutofscar
cit
yandchoi
ce.

Anycommodi
tywhi
chi
spai
dfori
saneconomi
cgoode.
g.cl
othes,
vehi
cles,
pens.

Char
act
eri
sti
csofeconomi
cgoods

 Theyar
erel
ati
vel
yscar
ce.

 Theypr
ovi
desat
isf
act
ion/ut
il
it
y

 Theycommandapr
ice/bemar
ket
abl
e/hav
eamonet
aryv
alue.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page17
  Theyhav
eoppor
tuni
tycost
.

 Thei
rowner
shi
pist
ransf
erabl
e

j
) Mer
itgoods.

Ar
ethosewhoseconsumpt
ioni
sdeemedi
ntr
insi
cal
l
ydesi
rabl
eandar
emeantt
o
i
mpr
ovet
hequal
i
tyofl
i
feoft
hepeopl
eandt
hei
rconsumpt
ionshoul
dbe
encour
aged.Exampl
esofmer
itgoodsar
esaf
ewat
er,
heal
thcar
eandeducat
ion.

k)Demer
itgoods.

Thesear
egoodsconsi
der
edt
obesoci
all
yundesi
rabl
eandr
educet
hequal
i
tyofl
i
fe
ofi
ndi
vi
dual
sandt
hesoci
etyatl
argee.
g.ci
gar
ett
es,
alcohol
,por
nogr
aphi
cmat
eri
als.

l
) Nor
mal
goods.

Thesear
egoodswhosedemandi
ncr
easesast
heconsumer
’si
ncomei
ncr
eases.E.
g.
f
ir
sthandcar
s,f
ir
sthandshoes,
fir
sthandsui
ts.

m)I
nfer
iorgoods.

Ar
ethosewhosedemandr
educesast
hei
ncomeoft
heconsumeri
ncr
easese.
g.
cassav
aandbeans,
secondhandcl
othes,
secondhandcomput
ers,
secondhand
shoes.

OR

Ar
egoodswi
thnegat
ivei
ncomeel
ast
ici
tyofdemand.

n)Gi
ff
engoods.

Ar
ethosewhosedemandi
ncr
easeswi
tht
hepr
iceandt
akeabi
gper
cent
ageoft
he
budget
/incomeoft
hel
owi
ncomeear
nere.
g.t
hebasi
cfoodst
uff
s.

OR

Ar
egoodswi
thposi
ti
vepr
iceel
ast
ici
tyofdemandconsumedbyl
owi
ncomeear
ner
s.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page18
 OR

Ar
egoodswi
thposi
ti
veel
ast
ici
tyofdemandandnegat
ivei
ncomeel
ast
ici
tyof
demandconsumedbyl
owi
ncomeear
ner
s.

Exampl
esofGi
ff
engoodsar
ebasi
cfoodst
uff
sli
kebananas,
mai
zef
lour
,br
ead,
br
ead,
cassav
a,pot
atoeset
c.

NB

Al
lgi
ff
engoodsar
einf
eri
orbutnotal
li
nfer
iorgoodsar
egi
ff
en.

o)Super
iorgoods/ar
ti
clesofost
ent
ati
on/l
uxur
ies/st
atussy
mbol
s.

Thesear
egoodst
hatar
edesi
rabl
eonl
ywhent
heyar
eexpensi
veandpeopl
ebuy
t
hem showt
hei
rcl
assort
oimpr
ess/at
tractt
heat
tent
ionofot
her
sforexampl
e
gol
denear
ri
ngs,
spor
tscar
s,per
fumes,
gol
denwat
ches,
expensi
vephones,
etc.The
demandf
orsuper
iorgoodsi
ncr
easesast
hepr
icei
ncr
eases.

p)Necessi
ti
es/essent
ial
goods.

Thesear
egoodst
hatt
hataconsumercannotdowi
thoutf
orexampl
efood,
shel
ter
,
wat
er,
clot
hing,
soap,
fuel
.Thedemandf
ornecessi
ti
esf
ir
sti
ncr
easeswhent
her
eis
ani
ncr
easei
ntheconsumer
s’i
ncomeupt
oacer
tai
npoi
ntbey
ondwhi
chf
urt
her
i
ncr
easei
nincomedoesnotaf
fectt
hequant
it
ydemanded.(
Quant
it
ydemanded
r
emai
nsconst
ant
).

q)Compl
ement
arygoods.

Thesear
egoodswher
ethequant
it
ydemandedofonecommodi
tyv
ari
esi
nver
sel
y
ast
hepr
iceoft
heot
hercommodi
ty.(
Ast
hepr
iceofonecommodi
tygoesup,
the
demandf
ort
heot
herf
all
s).

OR

Compl
ement
arygoodsar
egoodst
hatar
econsumedt
oget
her
.

Exampl
esi
ncl
udecar
sandf
uel
,gunsandbul
l
ets,
toot
hbr
ushandt
oot
hpast
e,et
c.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page19
r
) Subst
it
utegoods.

Thesear
egoodswher
ethequant
it
ydemandedofonecommodi
tyv
ari
esdi
rect
lyas
t
hepr
iceoft
heot
hercommodi
ty.(
Ast
hepr
iceofonegoesup,
thedemandf
ort
he
ot
heral
sor
ises)
.

OR

Subst
it
utegoodsar
egoodswhi
chcanbeusedf
ort
hesamepur
pose.

OR

Subst
it
utegoodsar
egoodswhi
chcanbeusedi
nter
changeabl
y.

Exampl
esi
ncl
udeCol
gat
eandf
resh-
up,
teaandcof
fee,
OmoandNomi
,et
c.

7.SERVI
CES

Thesear
eint
angi
blei
temst
hatar
ehel
pfuli
nmaki
ngourl
i
vescomf
ort
abl
eand
usef
ule.
g.medi
calser
vices,t
eachi
ng ser
vices hai
rdr
essi
ng ser
vices,banki
ng
ser
vices.

OR

Thesear
eint
angi
blei
temsusedt
ofaci
l
itat
ethepr
oduct
ionofgoodsandser
vices.

Theycanbecl
assi
fi
edas;

a)Per
sonal
ser
vices.

Thesear
epr
ovi
dedbyi
ndi
vi
dual
sdi
rect
lye.
g.past
ors,doct
ors,ser
vicesofa
t
eacher
,et
c.

b)Commer
cial
ser
vices

Thesear
eser
vicespr
ovi
dedbyi
nst
it
uti
onsandar
erel
atedt
oai
dst
otr
adee.
g.
i
nsur
ance compani
es,communi
cat
ion net
wor
ks,banki
ng ser
vices,t
ranspor
t
ser
vices,
etc.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page20
8.HUMANWANTS/NEEDS

Thesear
edesi
resofmanwhi
char
esat
isf
iedbyconsumi
nggoodsandser
vices.

Theycanal
sobedef
inedasbi
ologi
cal
,phy
sical
andcul
tur
alneedsofani
ndi
vi
dual
or
soci
ety
.

Theycanbecat
egor
izedas;

a)Basi
cneeds/want
s.

Thesear
enecessi
ti
esofl
i
fewi
thoutwhi
chl
i
fewoul
dhar
dlyexi
st.E.
g.shel
ter
,
f
ood,
wat
erandcl
othes.

b)Secondar
yneeds.

Thesear
eneedst
hatar
erequi
redt
omakel
i
fecomf
ort
abl
e.E.
g.t
elev
isi
onset
s,
car
s,ai
rcondi
ti
oner
s,et
c.

c)Mat
eri
alneeds/want
s.

Thesear
edesi
reswhi
char
esat
isf
iedt
hroughconsumpt
ionoft
angi
ble/phy
sical
goodse.
g.desi
ref
orcl
othes,
food,
houses,
chai
r,phone,
etc.

d)I
mmat
eri
alneeds.

These ar
e desi
res sat
isf
ied byconsumpt
ion ofser
vices e.
g.ent
ert
ainment
,
secur
it
y,heal
thcar
e,knowl
edge,
etc.

e)Pr
ivat
ewant
s.

These ar
e desi
res ofi
ndi
vi
dual
s and ar
e al
way
s sat
isf
ied usi
ng per
sonal
r
esour
cese.
g.t
hedesi
ref
orey
egl
asses,wheelchai
rbyal
ameper
son,phone,
et
c.

f
) Publ
i
cwant
s/needs.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page21
 Thesear
ecol
l
ect
iveneedsofsoci
etywhi
char
esat
isf
iedbypubl
i
cgoodsand
ser
vicee.
g.t
hedesi
ref
orpubl
i
cheal
thcent
res,publ
i
cschool
s,publ
i
croads,
nat
ional
def
ence,
etc.

g)Sat
iabl
ewant
s.

Thesear
ewant
swhi
chcanbesat
isf
iedbyt
heav
ail
abl
eresour
cesatagi
ven
per
iodoft
imee.
g.one’
sdesi
ret
oquencht
hir
sti
ssat
isf
iedbywat
erf
orsome
hour
s.

h)I
nsat
iabl
ewant
s.

Thesear
ewant
swhi
chcannotbesat
isf
iedusi
ngt
heav
ail
abl
eresour
cesi
na
shor
tper
iodoft
ime.Suchwant
scannotbesat
isf
iedbecauseoft
hel
i
mit
ed
r
esour
cese.
g.t
hedesi
ref
ormoneyandknowl
edge.

FEATURES/CHARACTERI
STI
CSOFHUMANWANTS

 Humanwant
sar
eunl
i
mit
edi
.e.t
heyar
eendl
esse.
g.man’
sdesi
ref
or
educat
ion,
secur
it
y,l
eisur
eisunl
i
mit
ed.

 Theyar
edy
nami
c,i
.e.t
heykeepchangi
ngf
rom t
imet
oti
medependi
ngon
t
hepr
evai
l
ingsoci
al,
pol
i
tical
andeconomi
ccondi
ti
ons.

 Theyar
evar
ied,i
.e.t
heyar
emanyandofdi
ff
erentt
ypese.
g.spi
ri
tual
,
bi
ologi
cal
,phy
sical
,et
c.

 Theyar
ecompet
it
ivei
nnat
ure,i
.e.i
ndi
vi
dual
sal
way
scompet
efort
he
l
i
mit
edr
esour
cesi
nor
dert
osat
isf
ytheunl
i
mit
edneeds.

 Theyar
erecur
rent(
insat
iabl
e)i
.e.t
her
eisacont
inuousneedt
osat
isf
y
want
sfr
om t
imet
oti
me/ t
heyar
ehar
dlysat
isf
iedonceandf
oral
l
/iti
s
i
mpossi
blet
osat
isf
yhumanwant
s.E.
g.one’
sdesi
ret
oquencht
hir
str
e-
occur
s.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page22
  Theyar
ecompl
ement
ary
,i.
e.t
heyar
ejoi
ntl
ysat
isf
iede.
g.one’
sdesi
ref
or
acarcal
l
sforot
herdesi
resl
i
kebuy
ingf
uel
andcarser
vice.

9.WEALTH

I
sast
ockofpr
oduct
ivegoods/asset
swhi
chsat
isf
ypr
ivat
eandsoci
alneedsof
peopl
e.

OR

Weal
thi
sthest
ockofasset
sandot
herr
esour
cesexi
sti
ngi
naneconomyatagi
ven
t
imewhi
char
eusedt
ogener
atemor
eincome.

FEATURES/
CHARACTERI
STI
CSOFWEALTH

 I
tisr
elat
ivel
yscar
ce.

 I
tcr
eat
esut
il
it
y/pr
ovi
dessat
isf
act
ion

 I
t’
sowner
shi
pist
ransf
err
abl
e

 I
thasamonet
aryv
alue/commandsapr
ice.

 Canbeusedt
opr
oducemor
eweal
th.

TYPESOFWEALTH

1.Per
sonal
weal
th.

Thesear
easset
sthatar
eownedbyani
ndi
vi
dualandt
heyar
eusedt
osat
isf
ythe
i
ndi
vi
dualowner
,e.
g.per
sonalcl
othes,f
urni
tur
e,books,v
ehi
cle,house,l
and,
cat
tl
e.

2.Busi
nessweal
th.

Thesear
easset
sthatar
eownedbyabusi
nessf
ir
m wi
thav
iewofmaki
ngpr
ofi
ts

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page23
 e.
g.companyv
ehi
cles,r
aw-
mat
eri
als,commer
cialbui
l
dings,i
ndust
ri
almachi
nes,
gener
atorandf
urni
tur
e.

3.Soci
al/publ
i
c/col
l
ect
iveweal
th.

Thesear
easset
sthatar
eownedbyt
hest
ate/
gov
ernmentandar
ecol
l
ect
ivel
y
usedbyal
lmember
soft
hesoci
ety
,e.
g.publ
i
croads,school
s,hospi
tal
s,publ
i
c
spr
ings/wel
l
s,st
reetl
i
ght
s.

10.
ECONOMI
CQUESTI
ONS

Aneconomyorani
ndi
vi
duali
sfacedwi
thanumberofeconomi
cquest
ions.These
i
ncl
ude;

a)Whatt
opr
oduce.

Si
ncer
esour
cesorf
act
orsofpr
oduct
ionar
escar
ce,achoi
ceofwhati
stobe
pr
oduced mustbemade.Somesoci
eti
eswoul
d pr
efert
o hav
emor
efood,
cl
othi
ngandmedi
calcar
ewhi
l
eot
her
swoul
dpr
efermor
eschool
s,r
oadsand
ot
herf
ormsofi
nfr
ast
ruct
ures.

b)Whent
opr
oduce.

Thati
schoosi
ngt
opr
oducenowf
orpr
esentconsumpt
ionori
nthef
utur
e.Most
peopl
epr
efert
oconsumenowt
hanpost
poni
ngi
tfort
omor
row.“
Abi
rdi
nhandi
s
bet
tert
hanat
housandi
nthebush.
”Asi
tuat
ioni
nwhi
chpr
esentconsumpt
ioni
s
pr
efer
redt
ofut
ureconsumpt
ioni
ster
medas“
posi
ti
ver
ateoft
imepr
efer
ence”
whi
l
e a si
tuat
ion i
n whi
ch f
utur
e consumpt
ion i
s pr
efer
red t
o pr
esent
consumpt
ioni
ster
medas“
negat
iver
ateoft
imepr
efer
ence.
”

c)Wher
etopr
oduce.

Thi
sconcer
nst
hel
ocat
ionoft
hebusi
ness.Thati
swhet
hert
opr
oduceneart
he
sour
ceofr
awmat
eri
alsorneart
hemar
ketorany
wher
ewi
thoutconsi
der
ingany
pul
lfact
or.Al
owcostl
ocal
i
tyi
swher
ethei
ndust
ryi
susual
l
ylocat
ed.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page24
 d)Howt
opr
oduce.

Thi
sconcer
nst
hemet
hodofpr
oduct
ion.Thati
swhet
hert
ousecapi
tali
ntensi
ve
orl
abouri
ntensi
vet
echnol
ogy
.Inacount
ryl
i
keUgandawher
elabouri
sabundant
andcheapert
hancapi
tal
,mor
elabouri
susedt
opr
oducegoodsandser
vices.I
n
cont
rast
,dev
elopedcount
ri
eshav
evastcapi
talequi
pmentandt
her
efor
euse
capi
tal
int
ensi
vemet
hodsatdi
ff
erentpr
oduct
ionl
evel
s.

e)Forwhom t
opr
oduce.

Thi
sconcer
nst
henat
ureoft
heconsumer
swhoar
etoconsumet
hepr
oduct
s.
Thati
swhet
hert
opr
oducef
ort
her
ichort
hepoor
,mal
eorf
emal
e,y
oung,
adul
ts
orol
dpeopl
eandsoon.

f
) Howmucht
opr
oduce.

Thi
sdependsont
hedemandf
ort
hecommodi
tyandt
heobj
ect
iveoft
hef
ir
m.
Themor
ethedemandf
ort
hecommodi
ty,t
hemor
equant
it
iespr
oducer
sar
e
l
i
kel
ytopr
oduceandputont
hemar
ket
.Al
soi
ftheobj
ect
iveoft
hef
ir
mist
o
maxi
mizesal
es,mor
eispr
oducedt
hanwhent
hef
ir
m’sobj
ect
ivei
stomaxi
mize
pr
ofi
ts.

11.
ECONOMI
CSYSTEMS

Aneconomi
csy
stem i
sanor
gani
zat
ionofowner
shi
p,al
l
ocat
ionanddi
str
ibut
ionof
r
esour
cesi
n a gi
ven count
ry.Theabov
efundament
aleconomi
cquest
ionsar
e
answer
eddi
ff
erent
lydependi
ngont
het
ypeofeconomi
csy
stem.Ther
ear
ethr
ee
basi
cty
pesofeconomi
csy
stemswhi
chexi
sti
nthewor
ldt
odayandt
hesear
e;

a)Fr
eeent
erpr
ise/
freemar
ket
/l
aissezf
air
e/unpl
anned/capi
tal
i
steconomy

b)Cent
ral
i
zed/
command/
planned/
soci
ali
steconomy

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page25
 c)Mi
xedeconomy
.

THEFREEENTERPI
SEECONOMY

I
saneconomi
csy
stem wher
eresour
cesar
eowned,
all
ocat
edanddi
str
ibut
edbypr
ivat
e
i
ndi
vi
dual
sthr
oughmar
ketf
orcesofdemandandsuppl
ywi
thl
i
ttl
eornogov
ernment
i
nter
vent
ion.

CHARACTERI
STI
CS/FEATURESOFTHEFREEENTERPRI
SEECONOMY

 Resour
cesar
eownedbypr
ivat
eindi
vi
dual
s.

 Thepr
icei
sdet
ermi
nedbyt
hemar
ketf
orcesofdemandandsuppl
y.

 Thepr
oduct
ionofcommodi
ti
esdependsondemand.

 Pr
oducer
sai
m atpr
ofi
tmaxi
mizat
ionandconsumer
sai
m atut
il
it
ymaxi
miz
ati
on.

 Ther
ear
emanybuy
ersandsel
l
ersi
nthemar
ket
.

 Ther
eisr
eli
anceonpr
icemechani
sm i
ntheal
l
ocat
ionofr
esour
ces.

 Ther
eisl
i
mit
edornogov
ernmenti
nter
vent
ionespeci
all
yinr
esour
ceal
l
ocat
ion
anddeci
sionmaki
ng.

 Char
act
eri
zedbysel
fint
erest
.

 Ther
eisf
reedom ofchoi
ce.Pr
oducer
s ar
e notf
orced t
o pr
oduce cer
tai
n
commodi
ti
esandconsumer
sar
enotf
orcedt
oconsumewhatt
heydonotwant
.

 Exi
stenceofhi
ghl
evel
sofcompet
it
ionamongstpr
oducer
sandconsumer
sin
bot
hfact
orandcommodi
tymar
ket
srespect
ivel
y.

MERI
TSOFTHEFREEENTERPRI
SEECONOMY

1.Ther
eisl
i
mit
edwast
ageofr
esour
cessi
ncepr
oduct
ioni
saccor
dingt
odemand.

2.Encour
agesexpl
oit
ati
onofi
dler
esour
ces.Thi
sresul
tsi
ntocr
eat
ionofmor
e

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page26
 empl
oymentoppor
tuni
ti
es.

3.Pr
ovi
desani
ncent
ivet
oeconomi
cgr
owt
h.Thepr
ivat
eowner
shi
pofr
esour
ces
f
aci
l
itat
est
heexpl
oit
ati
onandut
il
izat
ionofr
esour
cesi
naneconomy
.Thi
sincr
eases
t
hepr
oduct
ionofgoodsandser
viceshenceeconomi
cgr
owt
h.

4.Leadst
opr
oduct
ionofbet
terqual
i
typr
oduct
sduet
ocompet
it
ioni
npr
oduct
ion.

5.Pr
omot
esef
fi
ci
ental
l
ocat
ionofr
esour
cesduet
ocompet
it
ionandt
hepr
ofi
tmot
ive
ofpr
oducer
s.

6.Encour
agescr
eat
ivi
tyandi
nnov
ati
venessduet
ocompet
it
ioni
npr
oduct
ion.

7.Encour
agest
hegr
owt
hofent
repr
eneur
shi
pduet
otheur
get
oear
nhi
ghpr
ofi
ts.

8.Consumer
senj
oygoodsatl
owerpr
icesduet
obenef
it
sofcompet
it
ivepr
oduct
ion.
Thi
sleadst
obet
terst
andar
dsofl
i
ving.

9.Av
oidsadmi
nist
rat
ivecost
sbyt
hegov
ernmentbecauseofaut
omat
ical
l
ocat
ionof
r
esour
cesbyt
hei
nvi
sibl
ehand.

10.
Ther
eisl
owbur
eaucr
acyi
ndeci
sionmaki
ng.Thi
sreduceswast
ageoft
imeand
del
aysbecausepr
oduct
iondeci
sionsar
equi
ckl
ymadewi
thoutconsul
ti
ng
gov
ernmentof
fi
ces.

11.
Promot
esconsumersov
erei
gnt
y.Thi
sisbecauseconsumer
sar
egi
venf
reedom t
o
deci
deonwhati
stobepr
oducedandconsumed.

12.
Prov
idesav
ari
etyofgoodsandser
vicesduet
oal
argenumberofpr
oducer
s.

DEMERI
TSOFTHEFREEENTERPRI
SEECONOMY

1.Di
stor
tsconsumerchoi
cesduet
oper
suasi
veadv
ert
isement
.

2.Subj
ect
sthe economyt
o economi
cinst
abi
l
iti
essuch asi
nfl
ati
on,i
nst
abi
l
ityi
n

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page27
 bal
anceofpay
ment
sduet
oabsenceofgov
ernmenti
nter
fer
ence.

3.Leadst
ounempl
oymentandunder
empl
oymentduet
ocl
osur
eofsomeweakf
ir
ms.

4.Monopol
yisl
i
kel
ytodev
elopwi
thi
tsnegat
iveconsequencesespeci
all
yexpl
oit
ati
on
ofconsumer
s.Monopol
i
sti
cfi
rmsr
est
ri
ctout
putandchar
gehi
ghpr
iceswi
thanai
m
ofmaxi
mizi
ngpr
ofi
ts.

5.Wor
sensi
ncomeandweal
thi
nequal
i
tiesduel
ackofar
egul
ator
ybody
.Resour
ce
owner
stendt
oaccumul
ateal
otofweal
thwhi
l
ethepoorgr
owpoor
er.

6.Leadst
owast
ageofr
esour
cest
hroughexcessi
veadv
ert
isementanddupl
i
cat
ionof
goodsandser
vices.

7.Doesnotpr
ovi
depubl
i
cgoodssuchasdef
ence,j
ust
iceandsewagecol
l
ect
ionand
mer
itgoodsl
i
keeducat
ion,publ
i
cheal
thandsaf
ewat
er.Thi
smai
nlybecausei
t
woul
dbei
mpossi
blet
ochar
get
hem pr
icessi
nce“
freer
ider
s”ar
enotexcl
udedi
n
t
hei
rconsumpt
ion.

8.Somer
esour
cesmaybeov
erexpl
oit
edl
eadi
ngt
othei
rqui
ckdepl
eti
onandot
her
s
mayr
emai
nidl
e.

9.Pr
oduct
ionofgoodsandser
vicesi
sinf
avouroft
her
ich(
luxur
ygoods)t
hant
he
poor(
necessi
ti
es)
.Asar
esul
t,cheapgoodsdi
sappearf
rom t
hemar
ket
.

10.
Resul
tsi
nto pr
oduct
ion and consumpt
ion ofhar
mfulbutpr
ofi
tabl
e goods l
i
ke
al
cohol
,ci
gar
ett
es.

11.
Does notr
espond t
orapi
d/sudden st
ruct
uralchanges l
i
ke f
loodi
ng,f
ami
ne,
ear
thquakeswhi
chr
equi
repr
opergov
ernmentpl
anni
ng.

12.
Ther
eisdi
ver
gencebet
weenpr
ivat
ebenef
it
sandsoci
alcost
s.Underf
reeent
erpr
ise
economy
,pr
ivat
ebenef
it
sov
erwei
ghpubl
i
cbenef
it
s.I
ntr
yingt
oachi
evepr
ivat
e
benef
it
s,soci
alcost
sri
see.
g.pol
l
uti
on,
def
orest
ati
on,
exhaust
ionofr
esour
ces,
etc.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page28
NOTE

Thegov
ernmenti
nter
venesi
naf
reemar
keteconomyt
hroughi
tspol
i
cieswhi
chi
ncl
ude
t
hef
oll
owi
ng;

 Taxat
ion

 Subsi
dizat
ionofpr
oducer
s

 Pr
icel
egi
slat
ion(
maxi
mum ormi
nimum pr
ice)

 Gov
ernmentpl
anni
ng

 Rat
ioni
ngofconsumer
s(gov
ernmentpr
ovi
desscar
cer
esour
cest
oconsumer
s)

 Wagedet
ermi
nat
ion(
mini
mum wage)

 For
mat
ionofconsumerassoci
ati
onst
hroughwhi
cht
hegov
ernmentsensi
ti
zes
peopl
eaboutt
hei
rri
ght
s.

THECOMMAND/
COMMUNI
SM/CENTRALLYPLANNED/SOCI
ALI
STECONOMY

I
saneconomi
csy
stem wher
eresour
cesar
eowned,
all
ocat
edanddi
str
ibut
edbyt
he
cent
ral
aut
hor
it
yonbehal
foft
heci
ti
zens.

Thegov
ernmentcr
eat
esadepar
tmentcal
l
edt
hecent
ral
planni
ngaut
hor
it
yandt
his
depar
tmentmakesdeci
sionsonowner
shi
p,cont
rol
andal
l
ocat
ionofr
esour
ces.
Exampl
esofcount
ri
est
hatar
elar
gel
ysoci
ali
sti
ncl
udeRussi
a,Chi
na,
Nor
thKor
ea,
East
Ger
many
,Cuba.

FEATURESOFTHECOMMANDECONOMY

 Economi
corpr
oduct
iver
esour
cesar
eownedbyt
hest
atei
.e.t
hest
ateownsal
l
t
henat
ural
resour
cesandbusi
nessesi
nthecount
ry.

 Theeconomi
corpr
oduct
iver
esour
cesar
epubl
i
clyowned.Thepr
oduct
ive
r
esour
cesbel
ongt
oev
ery
onei
nthecount
ryandar
eusedwi
tht
hegui
danceof

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page29
 t
hegov
ernment
.

 Pr
icesar
edet
ermi
nedbyt
hest
atet
hati
sbyei
therset
ti
ngami
nimum pr
icet
o
benef
itpr
oducer
soramaxi
mum pr
icet
obenef
itconsumer
s.

 Themai
nai
m ofpr
oduct
ioni
stomaxi
mizepeopl
es’
wel
far
e.Thegov
ernment
doesnotai
m atmaki
ngpr
ofi
tsbutpr
oduci
nggoodsandser
vicest
hati
mpr
ove
peopl
es’
wel
far
e.

 Deci
sionsper
tai
ningt
oeconomi
cact
ivi
ti
essuchasr
esour
ceexpl
oit
ati
onar
e
handl
edbyacent
ral
planni
ngaut
hor
it
yandt
her
efor
esomer
esour
cesar
e
r
eser
vedf
orf
utur
euse.

 Sel
frel
i
ancei
sal
way
sthemaj
orgoal
oft
hegov
ernmentwhenev
ereconomi
c
r
esour
cesar
ebei
ngdesi
gned.

 Ther
eisl
i
mit
edcompet
it
ioni
npr
oduct
ionbecauset
hegov
ernmenti
snotpr
ofi
t
mot
ivat
edandconsumer
shav
etowai
tforwhatt
hegov
ernmenti
stopr
ovi
de.

 Ext
ensi
vepl
anni
ngbyt
hecent
ral
aut
hor
it
yisdone.Thegov
ernmenti
sinchar
ge
ofpl
anni
ngf
orev
ery
thi
ng.

MERI
TSOFTHECOMMANDECONOMY

1.I
ncomei
sfai
rl
ydi
str
ibut
edsi
ncer
esour
cesar
epubl
i
clyowned.

2.Resour
cesar
enotwast
edsi
ncet
her
eisef
fect
ivepl
anni
ngf
ort
heeconomy
.Scar
ce
r
esour
cescant
her
efor
ebeef
fect
ivel
yut
il
ized.

3.I
tel
i
minat
est
hei
nef
fi
cienci
est
hatt
endt
oresul
tfr
om meani
ngl
esscompet
it
ion.

4.Pr
ivat
emonopol
i
esar
econt
rol
l
edbyt
hest
ate.Thi
shel
pst
opr
otectt
heconsumer
s
f
rom bei
ngexpl
oit
edi
nfor
m ofhi
ghpr
iceschar
gedbypr
ivat
emonopol
i
sts.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page30
5.Peopl
e’
swel
far
eisi
mpr
ovedsi
nceemphasi
sinpr
oduct
ioni
sonwel
far
eandnot
commer
cial
gai
ns.

6.I
tensur
est
hatadequat
eresour
cesar
edev
otedt
opr
oduct
ionofpubl
i
candmer
it
goods.

7.Thesy
stem cancopewi
thr
api
dst
ruct
uralchangessuchasdr
ought
,fami
ne,
floods,
ear
thquakes,
etct
hroughpr
operpl
anni
ngbyt
hecent
ral
planni
ngaut
hor
it
y.

8. Thesy
stem cat
ersf
ort
heunpr
ivi
l
egedgr
oupsofpeopl
eint
hesoci
etysuchast
he
l
ameandt
hepoorhenceequal
dist
ri
but
ionofoppor
tuni
ti
es.

9.I
tcont
rol
sthepr
oduct
ionofhar
mfulpr
oduct
sint
heeconomy
.Thegov
ernmenti
sin
posi
ti
ont
oregul
atet
hepr
oduct
ionofsuchcommodi
ti
esl
i
keal
cohol
,ci
gar
ett
es
t
hrought
axat
ion.

10.
Somekeyar
easl
i
kepr
oduct
ionoff
ir
ear
mscannotbel
efti
nthehandsofpr
ivat
e
i
ndi
vi
dual
s.Thi
sisbecausei
tmaycausei
nsecur
it
yint
hecount
ryhenceaneedf
ora
pl
annedeconomy
.

11.
Mor
eempl
oymentoppor
tuni
ti
esar
epr
ovi
dedast
hegov
ernmentt
ri
est
oimpr
ove
wel
far
eandev
enouti
ncomedi
str
ibut
ion.

DEMERI
TSOFTHECOMMANDECONOMY

1.Manyof
fi
ci
alsar
erequi
redt
oest
imat
ewant
sandt
odi
rectf
act
orsofpr
oduct
ion
accor
dingl
y.Thi
sresul
tsi
ntohi
ghcost
s.

2.I
tishar
dtoaccur
atel
yest
imat
epeopl
es’
needssi
ncet
her
ear
emany
.Thi
sleadst
o
wast
ageofr
esour
cesduet
opoorj
udgementofwant
sandsomeneedsmayr
emai
n
unsat
isf
ied.

3.Bur
eaucr
acyandr
edt
apewhi
char
eassoci
atedwi
tht
hesy
stem l
eadt
odel
ayi
n
pr
oduct
ionandpl
anni
ng.Thi
smakesdev
elopmentt
omov
eatasl
owpace.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page31
4.Ther
eisi
nef
fi
ci
encyi
npr
oduct
ionduet
oabsenceofst
if
fcompet
it
ion.

5.Thequal
i
tyoff
inal
goodsandser
vicespr
oducedi
slowduet
olackofcompet
it
ion.

6.Li
mit
edv
ari
etyofgoodsi
spr
oducedasgov
ernment
’si
nter
esti
sinpr
ovi
sionof
necessi
ti
esofl
i
fe.Thi
sli
mit
sthechoi
ceofconsumer
sandt
heymaybef
orcedt
o
consumegoodswhi
char
enotoft
hei
rchoi
ce.

7.Thesy
stem i
sadi
si
ncent
ivet
opr
ivat
eori
ndi
vi
dual
ini
ti
ati
veduet
ost
ateowner
shi
p
ofr
esour
ces.I
.e.whatbel
ongst
othest
atei
snoman’
sresour
ce.

8.Thesy
stem i
sassoci
atedwi
thl
i
mit
edi
nvent
ionsandi
nnov
ati
onsduet
oabsenceof
compet
it
ion.

9.Thesy
stem i
sassoci
atedwi
thhi
ghl
evel
sofcor
rupt
ionandembezzl
ementof
gov
ernmentf
unds.Thi
sisbecauset
hesect
orcannotsuper
viseal
lthesect
ors
ef
fect
ivel
y.

10.
Itl
eadst
oimbal
ancei
nregi
onal
resour
ceal
l
ocat
ionanddev
elopment
.Thi
sisduet
o
st
atei
nfl
uencei
nresour
cedi
str
ibut
ionbasi
ngonpol
i
tical
suppor
t.

11.
Itl
eadst
obudget
arydef
ici
tsi
ntheeconomy
.Thi
sisduet
ohi
ghadmi
nist
rat
ive
cost
sandsubsi
dizat
ionofpar
ast
atal
swhi
char
enoteconomi
cal
l
ypr
oduct
ive.

12.
Iti
sdi
ff
icul
ttocoor
dinat
eal
ltheeconomi
cact
ivi
ti
esatt
hesamet
ime.Thi
sis
becauset
hegov
ernmenthasal
otofr
esponsi
bil
i
ties.

ASSI
GNMENT

Pr
esentt
headv
ant
agesofcapi
tal
i
sm ov
ersoci
ali
sm.

MI
XEDECONOMY

I
sonewher
eresour
cesar
eowned,
all
ocat
edanddi
str
ibut
edbybot
hthest
ateandt
he
pr
ivat
eindi
vi
dual
s(mar
ketf
orcesofdemandandsuppl
y).

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page32
 FEATURESOFAMI
XEDECONOMY

 Owner
shi
pofr
esour
cesi
sbot
hbyt
hest
ateandpr
ivat
eindi
vi
dual
s.Some
pr
oduct
iver
esour
cesl
i
kel
andandi
ndust
ri
esbel
ongt
othegov
ernmentwhi
l
e
ot
her
sar
epr
ivat
elyowned.

 Economi
cdeci
si
onsar
emadebybot
hthest
ateandpr
ivat
eindi
vi
dual
s.

 Pr
oduct
ioni
sbot
hforpr
ofi
tandwel
far
emaxi
mizat
ion.Thest
atepr
oduces
goodst
oimpr
ovepeopl
es’
wel
far
ewhi
l
epr
ivat
eindi
vi
dual
spr
oducet
omaxi
mize
pr
ofi
ts.

 Resour
ceal
l
ocat
ioni
sbybot
hthemar
ketf
orcesofdemandandsuppl
yandt
he
cent
ral
planni
ngaut
hor
it
y.

 Ther
eisco-
exi
stenceofbot
hthepr
ivat
eandpubl
i
csect
or.

 Ther
eisexi
stenceofi
ndi
cat
ivepl
anni
ng.I
ndi
cat
ivepl
anni
ngi
sonewher
ethe
gov
ernmentdr
awspl
ant
arget
sandpr
ovi
des(
conduci
ve)pol
i
tical
,soci
aland
economi
cpol
i
ciest
ogui
det
hepr
ivat
esect
orbuti
tdoesnotpar
ti
cipat
einpl
an
i
mpl
ement
ati
on.

 Regul
atedcompet
it
ioni
npr
oduct
ionandconsumpt
ion.Thegov
ernmentusesi
ts
aut
hor
it
ytocheckoncompet
it
ionbet
weenf
ir
ms.

MERI
TSOFAMI
XEDECONOMY

1.Li
mit
edr
esour
cewast
ageduet
oregul
atedcompet
it
ion.

2.Bet
terqual
i
typr
oduct
sar
epr
oducedbecauseofcompet
it
ionbet
weent
hepr
ivat
e
andpubl
i
csect
ors.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page33
3.Pr
oduct
ionofawi
dev
ari
etyofpr
oduct
sbybot
hthepr
ivat
eandpubl
i
csect
ors

4.Reducedi
ncomei
nequal
i
tiesduet
ost
atecont
rol
.

5.I
ndi
vi
dual
s’sel
fint
erest
sar
eregul
atede.
g.ov
erexpl
oit
ati
onofr
esour
cesand
consumerexpl
oit
ati
on.

6.I
tincr
easesempl
oymentoppor
tuni
ti
esduet
oexi
stenceofbot
hthepr
ivat
eand
publ
i
csect
ors.

7.Thepubl
i
csect
orpr
ovi
desessent
ial
goodsandser
vicest
hatt
hepr
ivat
esect
or
woul
dnotpr
ovi
de.

8.Ther
eiseconomi
cst
abi
l
ityduet
ogov
ernmenti
nter
vent
ion.

9.I
ncr
easedr
ateofeconomi
cef
fi
ciencyi
npr
oduct
ionduet
ocompet
it
ionandpl
anni
ng.

10.
Thet
axesgotf
rom t
hepr
ivat
esect
orcangener
atei
ncomef
ort
hegov
ernmentt
o
f
ulf
il
li
tsobl
i
gat
ions.

DEMERI
TS

1.I
nmostcases,
thepr
ivat
esect
orsuf
fer
sfr
om r
est
ri
cti
onsandt
axesi
mposedbyt
he
st
atey
ett
hepubl
i
csect
ori
ssubsi
dizedt
hust
hegr
oundf
orcompet
it
ioni
snot
l
evel
ed.

2.Wher
ethepr
ivat
esect
ori
sdomi
nant
,theconsumer
sar
eexpl
oit
edbyt
hepr
ofi
t
mot
ivat
edpr
oducer
s.Thepr
oducer
scanal
soi
nfl
uencegov
ernmentdeci
sions
pol
i
tical
l
yandeconomi
cal
l
y.

3.Ani
nef
fi
cientpubl
i
csect
ori
sabi
gbur
dent
othegov
ernmentsi
ncet
hegov
ernment
i
ncur
slosses,
exper
iencescor
rupt
ionandnepot
ism.I
fthepubl
i
csect
ori
skepton
goi
ngbyt
hest
atet
hroughsubsi
dieswhi
chi
ncr
easei
tsexpendi
tur
es,
itwi
l
lleadt
o
publ
i
cdebt
sandani
ncr
easeddebtbur
den.

THEROLEOFGOVERNMENTI
NAMI
XEDECONOMY

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page34
NB:

I
n economi
cs,wel
ookatt
her
oleof
…….
.f
rom af
unct
ionalper
spect
ivei
.e.i
nthi
s
par
ti
cul
arcase,wef
ocusonwhatt
hegov
ernmentdoesorwhati
tput
sinpl
acei
na
mi
xedeconomi
csy
stem.Hencet
her
ole(
funct
ionalwor
k)ofgov
ernmenti
nami
xed
economyi
sthus;

1.Enact
ing and enf
orci
ng l
aws t
hat gov
ernt
rade or busi
ness act
ivi
ti
es.The
gov
ernmentcr
eat
esa setofl
awsf
orexampl
ethel
aw ofcont
ract
,consumer
pr
otect
ionl
aws,Sal
eofgoodsAct
,Foodanddr
ugsAct
,et
c.suchl
awshel
pin
r
egul
ati
ngt
hewaycommer
cial
act
ivi
ti
esar
etobeconduct
edi
naneconomy
.

2.Suppl
ement
ingandmodi
fyi
ngt
hepr
icemechani
sm.Thegov
ernmenti
nami
xed
economymayi
nter
venei
nthewor
kingofpr
icemechani
sm t
hroughmeasur
esl
i
ke
pr
icecont
rol
s,t
axat
ionandsubsi
dizat
ion.Forexampl
e,l
egi
slat
ionofmax
imum
pr
icebyt
hegov
ernmenthel
psi
npr
otect
ingconsumer
sfr
om bei
ngexpl
oit
edby
pr
oducer
sthr
oughov
erchar
ging.

3.I
treduces orchecks i
ncome i
nequal
i
ty.The gov
ernmentuses pol
i
cies l
i
ke
pr
ogr
essi
vet
axat
ion,
suppor
ti
ngsmal
landmedi
um scal
eent
erpr
ises,
div
ersi
fi
cat
ion
oft
heeconomy
,et
ctocr
eat
eaf
airdi
str
ibut
ionofi
ncomeamongpeopl
einan
economy
.Fai
rdi
str
ibut
ionofi
ncomepr
omot
essav
ingsandi
nvest
ment
.

4.Ensur
ingmacr
o-economi
cst
abi
l
ity
.Thegov
ernmenti
sinchar
geoff
ight
ingi
nfl
ati
on
byr
egul
ati
ngt
hev
olumeofmoneyi
nci
rcul
ati
on.I
tal
soensur
est
hatt
heexchange
r
atesar
est
abl
einor
dert
opr
omot
eint
ernat
ionalt
rade.Macr
o-economi
cst
abi
l
ityi
s
i
mpor
tantbecausei
tpr
omot
esi
nvest
mentwhi
chgi
vesr
iset
opr
oduct
ionofmor
e
goodsandser
vices.

5.Pr
ovi
dingessent
ialgoodsandmer
itgoodst
othepubl
i
cataf
for
dabl
epr
ices.The
gov
ernmenti
nami
xedeconomypr
ovi
desmer
itgoodssuchassaf
ewat
er,heal
th
car
e(i
mmuni
zat
ionpr
ogr
ammes)andeducat
ionusual
l
yatsubsi
dizedcost
s.E.
g.
Thegov
ernmentofUgandai
scur
rent
lypr
ovi
dinguni
ver
salpr
imar
yandsecondar
y
educat
ioni
ngov
ernment–ai
dedschool
s.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page35
6.I
tcheckssoci
alcost
s(negat
iveext
ernal
i
ties)i
nacount
ry.Thegov
ernmentuses
env
ironmentpr
otect
ionl
awst
ocheckorr
educet
hedegr
adat
ionorpol
l
uti
onoft
he
env
ironment
.Itensur
est
hatt
her
eispr
opert
reat
mentanddi
sposalofi
ndust
ri
al
wast
e,gar
bage.Bycont
rol
l
ingt
hesoci
alcost
s,t
hegov
ernmenti
sabl
etoi
mpr
ove
t
hequal
i
tyofl
i
feoft
hepeopl
e.

7.Ensur
ing t
hatpol
i
ticalst
abi
l
itypr
evai
l
sin an economy
.Bypr
omot
ing pol
i
tical
st
abi
l
ity
,ther
eisassur
edsecur
it
yofl
i
feandpr
oper
tyofpeopl
e.Thi
sst
imul
ates
i
nvest
mentbot
hint
hepubl
i
candpr
ivat
esect
or.

8.I
tlev
iest
axest
ogener
ater
evenuet
ofi
nanceherdev
elopmentpr
ogr
ammesor
act
ivi
ti
es.Thegov
ernmenti
sabl
etof
inancei
tscapi
talandr
e-cur
rentexpendi
tur
eby
usi
ngt
her
evenuegener
atedf
rom t
axesl
evi
edoni
ncomesofi
ndi
vi
dual
s,goods,
pr
ofi
tsofcompani
es,
etc.

9.Under
taki
ngst
rat
egi
cvent
ureswhi
chcannotbel
efti
nthehandsofpr
ivat
einv
est
ors.
Suchv
ent
uresi
ncl
udet
hemanuf
act
uri
ngofammuni
ti
ons,pr
int
ingoft
henat
ional
cur
rency
,et
c.

10.
Under
taki
ngpr
oject
sthatr
equi
rel
argei
nit
ialcapi
talwhi
cht
hepr
ivat
einv
est
orsar
e
unabl
etor
aise.Such pr
oject
sincl
ude const
ruct
ion ofhy
dro – el
ect
ri
c power
gener
ati
ngdams,
const
ruct
ionofr
oadsandr
ail
li
nes,
etc.Byf
inanci
ngsuchpr
oject
s,
t
hegov
ernmentdi
rect
lysuppor
tst
heact
ivi
ti
esoft
hepr
ivat
esect
or.

11.
Inf
luenci
ng t
he l
ocat
ion ofi
ndust
ri
es i
n par
ti
cul
arar
eas.Thi
sis achi
eved by
gazet
ti
ngl
andf
ori
ndust
ri
alact
ivi
ti
essucht
hatt
hear
easbecomei
ndust
ri
alest
ates.
Forexampl
eNamanv
eindust
ri
alest
atewhi
chwasgazet
tedbyt
hegov
ernmentof
Uganda.

12.
Suppor
ti
ngup-
comi
ngi
nvest
orsbypr
ovi
dingi
nvest
menti
ncent
ivessuchast
ax
hol
i
day
sandsubsi
dies.Thesei
nvest
menti
ncent
iveshel
pinv
est
orst
oincurl
ower
cost
sofpr
oduct
ion.Thi
sincr
easespr
oduct
ionbypr
ivat
einv
est
orsi
nami
xed
economy
.

CSMADEEASYbyKi
ECONOMI gongoJi
mmy
Page36
13.
For
mul
ati
ng/l
ayi
ngdownpl
anst
obef
oll
owedbyt
hepr
ivat
esect
ororpr
ivat
e
i
nvest
ors and t
he publ
i
c sect
or.Forexampl
e,t
he Pl
an f
orModer
nizat
ion of
Agr
icul
tur
e(PMA)whi
ch wasdesi
gned byt
hegov
ernmentofUganda r
equi
res
par
ti
cipat
ionofbot
hthepubl
i
candpr
ivat
esect
ori
ntheeconomyf
ori
tsef
fect
ive
i
mpl
ement
ati
on.

14.
Prov
idi
ngandmai
ntai
ningt
hephy
sical
inf
rast
ruct
urei
naneconomy(
roads,
rai
ll
ines,
powerdams)
.Suchi
nfr
ast
ruct
uregr
eat
lysuppor
tst
hepr
oduct
ion pr
ocessl
eadi
ng
t
oincr
easedout
puti
nter
msofgoodsandser
vices.Thepr
oduct
ionofmor
egoods
andser
vicesgi
vesr
iset
oeconomi
cgr
owt
h.

15.
Ensur
ingcr
eat
ionofmor
eempl
oymentoppor
tuni
ti
esf
ori
tspeopl
e.I
nami
xed
economy
,gov
ernmentset
supandr
unspubl
i
cent
erpr
isest
hatoper
ateal
ongsi
de
pr
ivat
e ent
erpr
ises.Pr
ivat
e and publ
i
cinv
est
mentexpands and mor
ejobs ar
e
cr
eat
ed.Theempl
oyedpeopl
eear
nincomet
obuybasi
cneedsofl
i
feandt
his
i
mpr
ovest
hei
rst
andar
dofl
i
ving.

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