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What is another name for a collectivist economy?
Collectivist/Individualist economy, according to Ball (2001), exists in a society relating to the current economic development. It has influence on economic development, growth and changes in the economic structure.
Give another two examples of collectivist economies
Collectivism is a political or social economic theory encouraging state/communal ownership means of production ownership.
China, former USSR and Yugoslavia have been employing collectivism economic systems that were introduced in 1980s. China individual peasant farmers were made to sign a contract where land belonged technically to the collective owners, but assigned for individual household use. This has led to workers’ managed economy in Yugoslavia that later resulted in violent forced collectivisms.
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What type of economic system operates in South Korea? Explain your answer.
According to The World FactBook (2013), South Korea for the last four decades has undergone remarkable growth and global integration gaining high-tech industrialized economy. South Korea employs capitalist mixed economy as proved in the U.S Department of State (2005) allowing private ownership of businesses. The country’s GDP has grown at a higher rate than its population.
Using the table in figure 1, compare the economic performance of South and North Korea.
According to economic systems statistics provided by Central Intelligence Agency (2013), the comparison between the two states, North and South Korea, considers gross domestic product (GDP); real growth rate, GDP per capital (PPP), GDP composition by sector, labor force, labour force by occupation, country’s budget and Budget surplus or deficits. The comparison between the two states was done from 2009-2011 for North Korea and 2010 to 2012 respectively.
The real growth rate for North Korea rate was an average growth of 0.4% and peeking from -0.9% to 1.8 %. This is different from South Korea growth rates which declined simultaneously from 2010 to 2012. The rate reduced from 6.4%, 3.6% to 2.7% respectively. The GDP per capital for North Korea in terms of dollars had almost similar patterns. North Korea went from $1900, $1,800 and $1,800 as compared to South Korean that changed from $30,800, $31,700 and $32,400. The GDP composition by sector growth of North Korea in agriculture was 23.1%, industry 47.5% and services 29.4% while for South Korea was 2.7%, 39.8% and 57.5% respectively. The labor force in the North was 12.2 million while in the south is 25.18 million. The labor force of Northern Korea by occupation is higher than in South Korea was 35% in agriculture while in industry and services grew by 65% in 2008 while it was 6.4%, 24.2% and 69.4% in services respectively.
North Korean budget in 2007 was having revenue of $3.2 billion and an expenditure of $ 3.3billion while in South Korea was $271.9 billion having an expenditure of $249.2 billion in 2012. This shows that North Korea had a budget deficit as opposed to South Korea surplus budget. The Northern Korea budget had a deficit of 0.4% of its GDP in 2007 as compared to 2012, South Korea 2% budget surplus.
Why might firms which produce low quality goods survive in a collectivist economy but not
in a market economy?
Based on collectivist economic planning by Hayek (2009), economic and technological problems implya widespread belief that no economic problems would exist if the world was socialist. Economic problems exist, but are not always evident.
Collectivism society aims to solving present time problems. This includes everybody to deliberately solve economic household problems to reach an acceptable solution. Collectivism aims at obtaining greatest results from a certain means. An engineer will try to build a bridge with the least number of men. Based on this perspective, an engineer decides on the best economical method to build the bridge based on prices and technological difficulties present. Decision making factor element thus becomes prices he finds in the market. Hence, the collectivism-based firms can make cheap goods since everybody’s aim to solve household problems but may fail to perform well in market economy where best economical methods in reference to prices and technology are used.
Explain what is meant by innovation and why this would be encouraged in the type of economic system that operates in South Korea.
Innovation is the tendency of thinking about new and better ways of doing things and trying to put them in practice casing changes, as defined by Fagerberg et al. (2005).
South Korea is a capitalist-market economy having undergone dramatic economic growth. It made the country move from a poor country with high unemployment, poor saving and lack of exports to a rapidly developed country. The country GDP has grown at a higher rate than its population. Its rapid economic growth has been attributed to industrialization and urbanization under the market system. South Korea has heavily invested in technology and industrialization having light industries of textiles, footwear, leather manufacturing and wood processing, as provided by Lee (1996). The innovations should be encouraged to ensure foreign capital is obtained which will act as re-unification of cost facilitating further economic development. Innovation in specialized management systems should be implemented effectively to ensure proper financing and proper massive development.
From the growth figure 2 (North Korea) and figure 3 (South Korea) compare and contrast the
Growth patterns and suggests reasons for the differences.
The growth figures show North and South Korea economy performances since 1992. North Korea economy indicated by Korea Economic institute (2008) was trending down as low as six in 1992 that remarkably improved to -2.1 in 1994. The rate deteriorated to -4.1 up to -6.3% in 1997. In 1998 it grew to -0.1% and 6.2% in 1999. Later this growth stagnated to 1.3%, 3.7%, 1.2%, 1.9%, 2.2% and 3.8% in 2005. The rate went down to -1.1% and -2.3% in 2007.
On the other hand, South Korea growth annual growth rates by Trade Economics (2012) shows consistency in growth patterns unlike in 1999-2000 when the country’s GDP fell by -6% and picking in 2000 to economic growths of over 11%. South Korea GDP annual growth rate since 1992 has ranged from 8%, 10% in 1995, 0.5% in 1998, 5% in 2005, 4.9 in 2004 and 4.9% in 2007.
North Korea patterns have been facilitated by collectivist economy. It also experienced famine in the mid-1990s, which may have contributed to slower growth. Her factories lacks innovation thus uses out of date machinery, methods, and producing poor quality goods. It has invested in army rather than economy having the fifth largest army in the world.
South Korea has stayed afloat maintaining positive economic environment. Its market economy has shown resilient economic structure indictable to its outcome following post Asian Financial crisis efforts. Wages rose and labor productivity reduced slowing GDP growth. Its healthy GDP growth can be attributed to its diversified export oriented economy.
With reference to the information in the case study, using North Korea as an example of a
Planned economy and South Korea as an example of a mixed economy, discuss the advantages and disadvantages of planned and mixed economies
A command economy is one which coordination of economic activities essential to the viability and the functioning of a complex social economy that is undertaken through administrative means. These means are in form of commands, directives, targets and regulations. Mixed economy consists of set institutions that facilitate voluntary cooperation and exchange among individuals.
Advantages of mixed economy
Mixed economy, as documented by the U.S Department Of State (2005), allows private ownership of businesses. The government allows both public and private sectors to freely operate in an open market to produce goods and services. Supply and demand forces control the market prices. There is also free entry and exit into and out of the market. Many choices are available.
Disadvantages of mixed economy
There are limits to free enterprise. This is because some services are only restricted to public entities rather to the private enterprise. In this case, the government is the sole provider and administrator of justice. The government also regulates natural monopolies. This occurs when merging of two major companies will have undisputed monopoly surmounting on the market forces. The government also regulates private sectors by setting policies that they must adhere to. These include water and air pollution among others.
Advantages of planned economies
It aims at producing higher production derivative targets. It offers overwhelming goals and priorities to social goals that benefits entire public. This occurs due to maximum resource mobilization to enhance overriding national objectives. The inflation rates are rare due to disorganization of the market economy through price control ensuring currency stabilization.
Disadvantages of planned economies
Customer preferences are not considered as a central planning authority determines the goods. The government, as determined by Ericson (1987), states market prices as they control the supply and demand of commodities. The prices existing are meditated hence forming a market based economy rather than customer based. There is bureaucracy from administrative powers since the economy is centralized. With centralization and abandonment of the market economy, slower developments are evident due to poor resource allocation
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