please answer in 100 or 120 words
question is ➡ how was Central problem solved in different economies ?
Answers
Explanation:
The solution of central problems of an economy depends upon its nature. We can classify an economy in three broad categories.
(i) Capitalist economy
(ii) Socialist economy
(iii) Mixed economy
(a) Capitalist Economy
In a capitalist economy the price mechanism which works on the principle of demand and supply, solves the problem of what to produce i.e. the problem of allocation of resumes. The producers will demand, the price for which supply in short of its demand. The price for the commodity in the market will go up. Therefore, it will be signal for the producers to transfer factors of production to produce a particular commodity.
The problem of how to produce is also solved in a capitalist economy with the help of price mechanism. A producer can maximize profit by brining down the lost of mechanism. A producer therefore, he will employ those factors of production which cost him least. For example, if capital is relatively cheaper than labor, more units of capital will be used than labor and vice versa. The producers will determine capital-intensive techniques or labor intensive techniques on the basis of price mechanism. Thus, how to produce problem too can be solved with its help.
The price mechanism also helps in the solution of for whom to produce problem. This problem is related to the problem of distribution of money income, which in turn depends upon the reward paid to the different factor of production homely land, labor capital & entrepreneur. The reward of each of the factor of production is determined and decided by their respective demand and supply. The equilibrium between demand and supply of each of the factors determines their respective price. The price of factors of production determines the level of income, which turns, determines the amount of consumption and effective demand.
Socialist economy
Since the ownership over means of production lies in the hands of the state, therefore the question of what. How and for ‘whom and settled by the state with the help of a central agency like planning commission. It is the state, which allocates the resources of the economy among the different uses. All the sector of the economy is under the state and as such the allocation of resource among the various uses is done a most judicious manner. The state works for the welfare of the society as a whole. The price system is replaced by economic planning. The central planning agency allocates resources after taking civil military and other needs into consideration. In brief, the state organisms all economic activities and produces and distributes the goods among the consumers on the basis of us own decisions.
Mixed Economy
The Co-existence of both capitalist and socialist system in an economy is called mixed economy. A mixed economy has both the private & public sectors. A mixed economy is further classified into mixed capitalist economy and mixed socialist economy. In the former type of economy the lead role is played by private sector and the state plays just supporting role. Japan is an example of this type of economy. In the later type of economy the public sector plays a lead role and private sector supports it. Nepal is the best example for this type of economy. In mixed economy central planning agency along with price mechanism operates simultaneously to solve the problem of what now and for whom.
#hope it helps.......!!!!!!!
Answer:
Basic problems in Capitalist economies are solved through price mechanism, in Socialist economy through planning and in mixed economy through price mechanism and economic planning. Every economic activity in Capitalist economy is influenced by profit motive