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Equilibrium & Economies Of Scale In Socialist Economy

This report attributes equilibrium and economies of scale in socialist


economy. In socialist economy the means of production and
distribution are made by the public authority or the Government.
Increase of profit under socialism is one of the means for the
achievement of the aim of socialist production -- to satisfy most fully
the requirements of the people. So equilibrium and economies of
scale is important for socialist economies. In china’s socialist
economy structure the state retained ownership of large
enterprises, it does not use this ownership to intervene to change
prices which are set by the market. It is observed that most socialist
economies are less efficient. Mixed economy is the most
recommended economy because it permits free enterprise but at
the same time ensures that the basic needs of all citizens are met.

Socialist economy is a structure of the economy in which the means


of production, distribution, and exchange are owned by the
community collectively, usually through the state. It is characterized
by production for use rather than profit, by equality of individual
wealth, by the absence of competitive economic activity, and,
usually, by government determination of investment, prices, and
production levels. Marx called socialism an intermediary stage
between “capitalism” and the ultimate outcome of “communism.”

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Equilibrium & Economies Of Scale In Socialist Economy

Socialism is an economic phase where everyone benefits from


industrialization, and the number of workers is more than the
number of traders. Being the majority, more power is vested in the
hands of the workers. Socialism is only an economic system and not
a political system. Socialism is more advanced and liberal, where
everyone could contribute in the working of the economy.

Characteristics of socialist economy

The basic characteristics of such type of economic system are as


follows:

 It's a centrally planned economy


 It aims at achieving a better distribution of income and wealth
 Objective is to attain social gain
 Absence of consumer's sovereignty
 In the socialist economy, the power is mainly in the hands of the
workers.
 Capitalism can exist in a socialist economy
 Distribution of goods and services takes place according to the
individual’s efforts.

Equilibrium
In economics, economic equilibrium is simply a state of the world
where economic forces are balanced and in the absence of external
influences the (equilibrium) values of economic variables will not
change. The classic example is supply and demand. The supply
curve shows the quantity supplied at a given price by profit-
maximizing firms. The demand curve shows the quantity demanded
at a given price by utility-maximizing consumers. The intersection
of the supply curve and the demand curve is the equilibrium point
that maximizes both profits and utility.

Market Equilibrium

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Equilibrium & Economies Of Scale In Socialist Economy

Market Equilibrium is the point at which total supply and demand


within a market are equal, shown by the intercept of a demand
curve and a supply curve when both are graphed on the same axis.
The price at this point is market equilibrium price and the quantity is
market equilibrium quantity. Within most markets market
equilibrium will naturally be reached. For everything that is supplied
to be consumed and for the market to be "cleared," price must be
equal to or lower than equilibrium price.

Shortage
A shortage implies the market price is too low. Shortages were
common in socialist economies because low prices for common
staples such as food and energy are set by the government. Rather
than pay higher prices, people were forced to wait in long lines to
purchase the desired goods and services. With Qs < Qd (price is
below equilibrium price) firms sell everything they produce, and
people still want more. Producers will be expected to increase the
price. The price will continue to rise until the shortage is eliminated,
Qs rises, Qd falls and the price reaches the equilibrium price.

Surplus

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Equilibrium & Economies Of Scale In Socialist Economy

Surplus is anything above the equilibrium, when the supply is


greater than demand. A surplus occurs when quantity supplied exceeds
quantity demanded. At a price above equilibrium producers are willing to
supply more of a good that is demanded by consumers. Qs > Qd.

Economies of scale
Economies of scale refers to the reduction in long-run average and
marginal costs, due to increase in size of an operating unit (a factory
or plant, for example). Economics of scale can be internal to a firm
(cost reduction due to technological and management factors) or
external (cost reduction due to the effect of technology in an
industry). Economies of scale arise when the cost per unit falls as
output increases. Economies of scale are the main advantage of
increasing the scale of production and becoming ‘big’. Economies of
scale are important because a large business can pass on lower
costs to customers through lower prices and increase its share of a

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Equilibrium & Economies Of Scale In Socialist Economy

market. This poses a threat to smaller businesses that can be


“undercut” by the competition. Common economies of scale include:

 spreading administrative overheads over a bigger operation


 purchasing power to get better deals from suppliers
 lower costs in manufacturing e.g., if a bigger factory has lower
costs per unit produced
 better logistics leading to lower distribution costs

Equilibrium & Economies of scale in socialist


economy:

Increase of profit under socialism is one of the means for the


achievement of the aim of socialist production -- to satisfy most fully
the requirements of the people. So we can observe economies of
scale in socialist economy. Under socialism, prices are not free to
rise and fall. Instead, prices is set by central planners. Put
differently, because there is no private property in the means of
production, individuals have no power to set prices in response to

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Equilibrium & Economies Of Scale In Socialist Economy

supply and demand. Since producing too much of one good implies
producing too little of another, the result of the calculation problem
is that there will be chronic shortages of one good or another. So
that it is impossible to predict which goods will experience shortage,
since if that could be predicted, production could be adjusted to
eliminate the shortage, and the calculation problem would in fact be
solvable. The State would ensure equitable distribution of incomes
through its allocation of the surplus (profit) from efficient production
and investment in socially desirable planned development.

China an example of socialist economy

The economy of the People's Republic of China is a rapidly


developing and influential market economy. China is the third
largest economy in the world after the US and Japan. The only
reason that China has been such a success in economic growth

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Equilibrium & Economies Of Scale In Socialist Economy

over the last 2 decades is precisely because they drastically


shifted away from the more rigid socialist planned economy to a
much more capitalistic one. The average Chinese individual has
much more economic freedom today then in the past. A
substantial part of the economy of China is still state-run, although
there are not as many social programs as there once were and
universal healthcare has been eliminated. Still has a Socialist-type
foreign policy, for the most part.

Market socialism in China:

The market is given the free hand to allocate and distribute the
country’s resources based on the forces of supply and demand. It
thus retains the essential feature of efficiency, growth and
production of surplus value generally associated with capitalist
economies.
This model was effectively launched in China after reform,
Hungary, Yugoslavia and Czechoslovakia in the 1970’s and 80’s
and is presently adopted in Germany. Government ownership is
retained in key sectors such as heavy industry, energy and
infrastructure while private ownership or entrepreneurship with
public-private participation is followed along the lines of the mixed
economy model. India also follows a model of a mixed economy.
The greatest asset of this sort of economy is the decentralization
of decision making and giving local managers more freedom to
respond to market conditions. This also sometimes called a mild
version of state socialism and are called social democracies where
the socialists do not overthrow the capitalist system altogether bit
mould it to social purposes.

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Equilibrium & Economies Of Scale In Socialist Economy

Social market economy is here to stay and market socialism is only


an improved form of traditional state socialism. China has a
socialist economy with capitalist tendencies. It’s Socialist because
the state owns all the factors of production (like land and capital).
It has capitalist tendencies because it is not totally equal.
A pure socialist economy would have everyone making equal
wages, and receiving equal benefits. China pays ranges for jobs
(nobody can make more than x dollars for doing job and nobody
can make less than x dollars for the same job). They do this so
there is still incentive to work....better jobs still put you in a better
economic situation....but there is not total free enterprise (nobody
can accumulate massive amounts of wealth like in the U.S. and
other capitalist nations). The socialist system dates back to Mao
Zedong, but it has had to adapt to have capitalist tendencies
because pure socialism is inefficient and usually fails. Establish a
socialist market economic system is a fundamental innovation in
China's economic structure, and the fundamental way to achieve
socialist modernization, it has its own characteristics and
qualitative features.
The establishment of the socialist market economic system is a
fundamental change of the traditional planned economy system, it
is no longer the traditional planned economy, but market economy
and it has the basic attributes of market economy.
Firstly, from economical perspective, China's socialist market
economy uses public ownership as the mainstay, including private
economic and wide variety of economic sectors common
development under the conditions of the market economy. China
implement market economy is under the conditions of using public
ownership as the main body. It is necessary to adhere to public
ownership as the mainstay and also the implementation of market
economy. Therefore, in the process of establishing a socialist

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Equilibrium & Economies Of Scale In Socialist Economy

market economic system, we must uphold and improve the various


forms of public ownership economy, straighten out the relationship
between the state and enterprises and further the transformation
of their operational mechanism. Thus, a mixed-ownership structure
with public ownership as the mainstay, particularly in the large and
medium-sized key state-owned and state holding enterprises, will
be better play their advantage, guarantee the rational distribution
of national economy, conserve resources and orderly operation of
market.
Secondly, from political perspective, China's socialist market
economy is market economy which led by the Communist Party of
China, effectively exercise macro-control by the government. Since
the beginning of reform and opening up, China made great
achievements that have attracted worldwide attention on all
aspects, all of which are under the leadership of the party.
Meanwhile, in the process of establishing the socialist market
economic system, the government must have a strong macro-
control, through economic policies, economic legislation, planning
guidance and the necessary administration, create a stable,
security, orderly and equitable socio-economic environment for
market economy.
Thirdly, from the objective perspective, China's socialist market
economy must use achieve common prosperity as its fundamental
principle. China implement market economy, allow a reasonable
income gap, encourage some people to get rich first, but the
ultimate goal is to achieve common prosperity, not lead to
polarization, "the rich are getting richer, the poor are getting
poorer."

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Equilibrium & Economies Of Scale In Socialist Economy

Most of the information is collected from secondary sources.


Information required in writing this report is already available on
internet and I have extracted it from different websites. I have
extracted information about Chinese economy from different
reports. I have also collected data from sources such as articles,
journals, magazines, books and periodicals to obtain historical and
other types of information.

SWOT Analysis is a strategic planning method used to evaluate the


Strengths, Weaknesses, Opportunities, and Threats involved in a
project or in a business venture.

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Equilibrium & Economies Of Scale In Socialist Economy

Strengths

 In environments with plentiful resources, socialism provides all


members with their survival needs, creating a stable social
environment.
 Members that cannot participate economically - due to
disabilities, age, or periods of poor health can still impart wisdom,
emotional support and continuity of experience to the system.

Weaknesses

 Since there is no culling and no economic advantage to working


harder, socialistic systems provide no inherent incentive to
participate. This makes socialism internally unstable.
 Due to a lack of incentives, socialistic systems tend not to be
competitive, making them externally unstable.
 In times of plenty, immigrants are drawn to the free resources
offered by socialistic systems, while potentially adding nothing
economically productive.

Opportunities

Freedom from work in socialist economy provides opportunity for


some societal members to explore non-economically-productive
pursuits, such as pure science, math and non-popular arts.

Threats:

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Equilibrium & Economies Of Scale In Socialist Economy

In socialist economy, in the times of scarcity, resentment of non-


economically-productive members of society increases, causing a
destabilizing effect on the society and economy.

A socialist economy is characterized by more government ownership


and central planning. Most economists are convinced that socialist
economies are inherently less efficient because government, which
relies on tax revenues, is far less likely than private businesses to
heed price signals or to feel the discipline imposed by market forces.
It is usually not as productive or efficient as capitalism. Since the
government guarantees jobs, in theory more workers will be hired
than are really necessary. This will drive the prices of production up.
I believe that mixed economy is the most appropriate economic
foundation for a large, diverse nation. This must be accompanied by
open competition and diversity which I believe depends on freedom
of expression, free access to information, and education.

In the light of conclusion the most recommended economy for a


country is mixed economy. It is the most popular type of economic
system. This economics system permits free enterprise, but at the
same time ensures that the basic needs of all citizens are met.

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Equilibrium & Economies Of Scale In Socialist Economy

Advantages of mixed economy in that, a verity of goods are


available. We can find the role of co-operatives in the field of
cultivation diary, poultry. The use of intoxicants and drugs is
prohibited and the government never allows black marketing.
Income disparities can be checked. The basic rational behind under
mixed economy is to raise social welfare of the masses removing
the pitfalls attached with the free enterprise. Public services are
provided for every one. Government also addresses issues beyond
the reach of market forces. It provides welfare and unemployment
benefits to people who cannot support themselves. It pays much of
the cost of medical care for the aged and those who live in
poverty. Mixed economy must be accompanied by open
competition and diversity which I believe depends on freedom of
expression, free access to information, and education.

1)http://www.canadianeconomy.gc.ca/English/economy/capita
lism_socialism.html
2)
http://www.economicshelp.org/microessays/equilibrium/mark
et- equilibrium.html
3) http://tutor2u.net/economics/revision-notes/a2-micro-
economies-diseconomies-of-scale.html

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Equilibrium & Economies Of Scale In Socialist Economy

4)http://en.wikipedia.org/wiki/Socialism_with_Chinese_charact
eristics
5) http://www.cabc.org.cn/news/2009-7-
9/200979144839.html
6) http://graphcomp.com/home/bfree/opinions/economy.html

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