The paper "Command Economy and Free Market Economy" is a perfect example of a macro and microeconomics assignment. The two extremes of economy type are the command economy and the free-market economy. Different countries have different factors that make each of the two economy extremes suitable and applicable in their unique context. In making the choice of the economy to build, personal preferences would be directed to a free-market economy. Free-market economy, as compared to the command economy has the ability to motivate, spur enthusiasm, freedom, competition, and choice, which make the economy lively and more inclined to grow and develop (Eecke, 2008).
Governments actively participate in command economy in terms of limiting choice, discourages competition and does not create a viable environment that can motivate economic growth and development. The government is the sole custodian in the determination of what to produce when to produce, where to produce, how to produce and the level to produce (Grant & Vidler, 2000). As a result, the government is less interested in profits, growth and positive rewards, which makes the command economy ‘ boring’ in terms of motivating players to increase investments opportunities in anticipation of positive rewards and growth (Grant & Vidler, 2000). Question 2 The demand curve is a kind of graph that shows the relationship between price and quantity demanded (Bernanke, 2003).
It simply tells or shows how people are likely to buy a particular product at a particular given price. As can be seen in the graph below, the price is put on the vertical axis and the quantity is put on the horizontal axis. One primary aspect reflected in the demand curve is that it is downward-sloping with respect to price (Bernanke, 2003).
What this primary aspect tells about demand curves is that consumers are willing to buy more at a lower price. Attempts to increase the price of the product lead to a gradual decrease in consumption hence demand (Bernanke, 2003). Therefore, the inverse relationship is established between demand and price, whereby, decrease in the price of a product leads to an increase in demand, and an increase in price leads to a decrease in demand for the product. Figure 1: Demand curve Income has the ability to either affect the demand of a product positively or negatively.
When disposable income increase, consumers tend to increase their consumption level, a situation that later increases the demands of a product. On the contrary, when disposable income reduces, consumers reduce consumption level, a situation that decreases the demand for a product (Lipsey & Harbury, 1992). On the other hand, prices of other products (substitutes and complements); substitutes, price increase or decrease motivate consumers to reduce or increase consumption of the product respectively.
In the case of complement products, an increase in the price of one product results in a decrease in demand for the other product (Lipsey & Harbury, 1992). Question 3 The cross-elasticity of demand constitutes a percentage change in the quantity of a product that is demanded of one product in relation to the percentage change in the price of a related product when all other things are held constant (Boyes & Melvin, 2012). In most cases, when the calculated cross-price elasticity of demand is positive, the products are said to be substitutes, and when the calculated figure is negative, the products are said to be complements (Boyes & Melvin, 2012).
Cross-price elasticity is important to an organization in that it determines the level and nature of competition for the organization (Boyes & Melvin, 2012). For instance, positive cross-price elasticity between an organization’ s products in relation to other industry products provides room for a threat from other competitors.
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