Mixed Economy

Topics: Economics, Mixed economy, Economic system Pages: 4 (993 words) Published: June 7, 2011
This paper is to be submitted to Mr. Booker as an assignment. It essentially focuses on two questions: a) How does the free market deal with the fundamental question of micro-economics? b) What problems are posed by merit, demerit and public goods?

Fundamental question of micro-economics So, first, what is economics? According to Paul A. Samuelson, economics is “the study of how societies use scarce resources to produce valuable commodities and distribute them among different people." Very briefly, we may summarise that economics is the study of how people choose to use resources. The economic problem is said to arise when we have scare resources to satisfy our unlimited wants. As a result of this problem, which is sometimes called the problem of scarcity, choices have to be made over the following points:

1. What to produce?
A classic question here that we often heard of is “Butter or cannon?” Should an economy produce more consumer goods, e.g. TVs, which can immediately raise people’s living standards, or put more resources into produce more machinery that would enhance the economy’s production capability in the long run? How to strike a balance over the quantities of diffident goods are going to be produced is well worth considering for the decision-makers.

2. How to produce?
Generally, what we expect the market going to do is to obtain maximum use out of resources available. This is obvious, but some other issues besides purely economic concerns also should be considered. For example, even though we could produce more goods by forcing labours to accept longer working-hours; this is not something we should do, since there exists moral objections. So, the decision to maximise output and satisfy more wants would need to consider the full impact on the environment and any potential long-term health risks.

3. For whom to...
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