The paper “ Principles of Economics” is a worthy example of the assignment on macro & microeconomics. I would build a free-market economy. According to Chand (2005, p. 116), a free-market economy is a market in which most of the production takes place in the market sector and it is free from the control of the government or the central authorities. In a free-market economy the production, purchase decisions, and sales taken by households and firms determine the allocation of resources. b. iIn free-market economy goods and services are voluntarily exchanged without the intervention of the central government.
Under this market, the well being of the nation is determined by the interaction of the forces of demand and supply. In a free-market economy, the means of production are owned privately (Hussain 2010, p. 19). On the other hand, a centrally controlled market is one in which the prices of goods and services are determined by the government. In the centrally controlled market, the government determines how much the producers are to produce and sell. b. iiAccording to Hussain (2010 p. 19), a free market is advantageous because it ensures efficient allocation and utilization of resources and at the same time it prevents monopolies from forming.
However, the free market economy can create a barrier towards attaining balanced social welfare because it may lead to the concentration of wealth to a few members of the society. On the other hand, a centrally controlled economy is stable and it ensures all the needs of the public are met. However, it may lead to underutilization of resources, lack of innovation, and the public may have few options to choose from. 2 aDemand refers to the number of goods that customers are willing and able to purchase at any given period of time.
Mankiw (2011, p. 11) notes that the relationship between the price and quantity demanded is explained by the law of demand. The law of demand states that the demand for a product decreases with the increase in its price. On the other hand, quantity demanded increases with a decrease in price while holding all the other factors constant. At price P0 the quantity demanded Q0 when the price is increased to P1 quantity demanded decreases to Q2 and when the price is reduced to P2 quantity demanded increases to Q2
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