Quiz 2: Economic Systems, Resource Allocation, and Social Well-Being: Lessons From Chinas Transition


Two types of economic systems that are distinct, yet tend to overlap, are the pure market and the pure command. The main distinction between them is the amount of government or central control that is allowed with relation to the choice that is given to the marketer. In a pure market, the individuals and businesses are able to conduct business according to how they see fit for their best interests. Ideally, there is limited or no interference from any governing bodies. Business is conducted in a purely negotiable manner, such as being able to choose which store to buy certain products from or to work for. Many countries today have adapted this form of marketing into what is commonly known as capitalism. In a pure command system, businesses are completely controlled and governed by a centralized entity, usually the area government. The central entity makes all buying, selling, and marketing decisions regarding businesses in its area. These decisions are usually binding and nonnegotiable. Overall, the United States is considered a mixed system. This means that it contains characteristics of both the pure market and the pure command system. While it does allow to government to legislate laws explaining how business should be conducted and regulated, it still operates as a capitalist market because consumers and businesses (along with their associates) are able to make free and informed decisions about how they will conduct their business.

Competition is an important component of resource allocation and the overall market structure. There are several criteria that must be met in order for a market to be considered purely competitive. One of these is the ability of sellers to leave or enter the marker at will. This is important in terms of resources since it would not do any good for a seller to remain in a market if they are no longer willing or able to produce a certain product; in contrast, if a new seller is able to produce a product more efficiently or has created a new product that would benefit businesses or consumers, they should be allowed to freely enter the market. This component helps to keep business competition ongoing so that new products or production methods might continue to be explored and employed.

Competitive markets thrive on product diversity and competitive pricing, among other things. In the car market, many dealers competing for consumers' money means a wide variety of cars and features to choose from. It also means that consumers have multiple pricing and buying options when obtaining their vehicle. If the car market were to become more monopolistic, customers would see a reduction in the variety and diversity of vehicles. They might see one make or model more frequently than others. This would put off consumers who did not gravitate toward that particular brand. There would also be fewer pricing options and consumers who could not afford a particular price bracket might be unwilling or unable to buy certain cars. There would be fewer consumers in the market to buy cars as a result.