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Equilibrium & Economies Of Scale In Socialist Economy
Equilibrium
In economics, economic equilibrium is simply a state of the world
where economic forces are balanced and in the absence of external
influences the (equilibrium) values of economic variables will not
change. The classic example is supply and demand. The supply
curve shows the quantity supplied at a given price by profit-
maximizing firms. The demand curve shows the quantity demanded
at a given price by utility-maximizing consumers. The intersection
of the supply curve and the demand curve is the equilibrium point
that maximizes both profits and utility.
Market Equilibrium
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Equilibrium & Economies Of Scale In Socialist Economy
Shortage
A shortage implies the market price is too low. Shortages were
common in socialist economies because low prices for common
staples such as food and energy are set by the government. Rather
than pay higher prices, people were forced to wait in long lines to
purchase the desired goods and services. With Qs < Qd (price is
below equilibrium price) firms sell everything they produce, and
people still want more. Producers will be expected to increase the
price. The price will continue to rise until the shortage is eliminated,
Qs rises, Qd falls and the price reaches the equilibrium price.
Surplus
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Equilibrium & Economies Of Scale In Socialist Economy
Economies of scale
Economies of scale refers to the reduction in long-run average and
marginal costs, due to increase in size of an operating unit (a factory
or plant, for example). Economics of scale can be internal to a firm
(cost reduction due to technological and management factors) or
external (cost reduction due to the effect of technology in an
industry). Economies of scale arise when the cost per unit falls as
output increases. Economies of scale are the main advantage of
increasing the scale of production and becoming ‘big’. Economies of
scale are important because a large business can pass on lower
costs to customers through lower prices and increase its share of a
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Equilibrium & Economies Of Scale In Socialist Economy
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Equilibrium & Economies Of Scale In Socialist Economy
supply and demand. Since producing too much of one good implies
producing too little of another, the result of the calculation problem
is that there will be chronic shortages of one good or another. So
that it is impossible to predict which goods will experience shortage,
since if that could be predicted, production could be adjusted to
eliminate the shortage, and the calculation problem would in fact be
solvable. The State would ensure equitable distribution of incomes
through its allocation of the surplus (profit) from efficient production
and investment in socially desirable planned development.
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Equilibrium & Economies Of Scale In Socialist Economy
The market is given the free hand to allocate and distribute the
country’s resources based on the forces of supply and demand. It
thus retains the essential feature of efficiency, growth and
production of surplus value generally associated with capitalist
economies.
This model was effectively launched in China after reform,
Hungary, Yugoslavia and Czechoslovakia in the 1970’s and 80’s
and is presently adopted in Germany. Government ownership is
retained in key sectors such as heavy industry, energy and
infrastructure while private ownership or entrepreneurship with
public-private participation is followed along the lines of the mixed
economy model. India also follows a model of a mixed economy.
The greatest asset of this sort of economy is the decentralization
of decision making and giving local managers more freedom to
respond to market conditions. This also sometimes called a mild
version of state socialism and are called social democracies where
the socialists do not overthrow the capitalist system altogether bit
mould it to social purposes.
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Equilibrium & Economies Of Scale In Socialist Economy
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Equilibrium & Economies Of Scale In Socialist Economy
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Equilibrium & Economies Of Scale In Socialist Economy
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Equilibrium & Economies Of Scale In Socialist Economy
Strengths
Weaknesses
Opportunities
Threats:
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Equilibrium & Economies Of Scale In Socialist Economy
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Equilibrium & Economies Of Scale In Socialist Economy
1)http://www.canadianeconomy.gc.ca/English/economy/capita
lism_socialism.html
2)
http://www.economicshelp.org/microessays/equilibrium/mark
et- equilibrium.html
3) http://tutor2u.net/economics/revision-notes/a2-micro-
economies-diseconomies-of-scale.html
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Equilibrium & Economies Of Scale In Socialist Economy
4)http://en.wikipedia.org/wiki/Socialism_with_Chinese_charact
eristics
5) http://www.cabc.org.cn/news/2009-7-
9/200979144839.html
6) http://graphcomp.com/home/bfree/opinions/economy.html