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Principles of Economics Essay

The individuals in socialistic society surrender their economic freedom in exchange f assurance of freedom from wants by the State. It is the responsibility of the State to provide food, lodging and clothing besides other requirements, by assigning a suitable Job to each one of them. Characteristics of Socialist Economic System Following are the Characteristics In socialism means of production are 1 . Owned by the State 2. Economic activities are planned by the central planning authority 3. Absence of competition 4. Equal opportunities to all 5.

No economic freedom to the people Advantages and Disadvantages of Socialism Following are the merits and demerits, advantages and disadvantages of socialism. Advantages of Socialism Following are the benefits or advantages of socialism Greater Efficiency Economic efficiency under socialism is greater than under capitalism, the means of production are not left in the market forces rather they are controlled and regulated by the central planning authority towards chosen end. The central planning authority makes an exhaustive survey of resources and utilizes them in the most efficient manner.

Greater Welfare In a social economy, there is less inequality of income as compared to capitalist socialist economic system every one works hard and paid as per his

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skills & ability. Absence of monopolistic practices One of the benefits of socialism is that it is free from monopolistic practices to be found in a capitalist society. Since under socialism all means of production are owned by the state, the exploitations by the monopolist are absent. Instead of private monopoly, there is state monopoly over the productive system but this is operated for the welfare of the people.

Absence of business fluctuations A socialist economy is also superior to a capitalist economy that is free from business fluctuation. Generally planned economy co-ordinates the action of various producing nits, prevents discrimination between saving and investment and make full use of available resources. It is able to control over production and avoid general deflationary trend. Economic Growth I will consider economic growth as an important advantage of socialism because it adopts economic planning as a means of promoting rapid economic growth.

A planned socialist economy functions right according to the plan in a systematic and orderly manners and marches rapidly on the road to economic progress. Disadvantages of Socialism Following are the demerits or disadvantages of socialism. Elimination of Individualism There are many disadvantages of socialism but first come in my mind is the lack of economic freedom. In socialist economic system everything is controlled by a centralized body. Individuals are not allowed to own any assets, everything belongs to the state. Workers are assigned specific Jobs and are not allowed to change them without consent from the planning authority.

In socialism there is a lot of involvement of bureaucracy and are the drivers of all economic machinery. The work civil servants are not comparable with the private entrepreneurs. Civil servants merely do the Jobs because it is their duty and they will et paid whatever the consequences. Thus inefficiency arises and in the long run the economy suffers. As a socialist economy is a planned economy, every aspect of the economy is to be determined by the government. Forces of demand and supply do not apply which is one of the disadvantages of socialism.

Thus in the long run the economy becomes state rather than wasted, whereas these make an economy prosper. Consumers Suffer In the final analysis it is the consumer who loses out. Sovereignty of consumer does not apply in a socialist economy. Consumers do not enjoy the status of a consumer as n a capitalist economy. Choices of goods and services are able to maximize their total satisfaction. Economic Equality Socialists claim more equal distribution of wealth but practically it is proven that complete economic equality is virtually impossible. There is a distinction between the rich and poor.

Moreover since it is a planned economy the poor suffer even more. Non-existence of economic and political freedom Freedom of enterprise, freedom in choice of occupation and many other essential freedoms for an economy to prosper are out rooted from society. The true spirit of democracy dies away. The basic needs although it has been agreed that the six basic needs in life are met within a socialist economy but all this is obtained at the expense of economic and political freedom. Non-existence of Competition It is due to competition that an economy becomes prosperous.

The competition between producers and consumers leads to the production of a good quality product which may even be relatively cheap here it is one the disadvantages of socialism. Thus talents and initiatives of mankind develop and in the ultimate analysis the country incurs rapid growth. 2. Explain the methods of measuring of Elasticity of Demand? Elasticity of demand is known as price-elasticity of demand. Because elasticity of demand is the degree of change in amount demanded of a commodity in response to a change in price.

Price elasticity of demand can be measured through three popular methods. These methods are: 1 . Percentage method or Arithmetic method 2. Total Expenditure method 3. Graphic method or point method. 1. Percentage method:- According to this method price elasticity is estimated by dividing the percentage change in amount demanded by the percentage change in price of the commodity. Thus given the percentage change of both amount demanded and price we can hat the percentage change in price, the coefficient thus derived will be greater than one.

If percentage change in amount demanded is less than percentage change in price, the elasticity is said to be less than one. But if percentage change of both amount demanded and price is same, elasticity of demand is said to be unit. 2. Total expenditure method Total expenditure method was formulated by Alfred Marshall. The elasticity of demand can be measured on the basis of change in total expenditure in response to a change in price. It is worth noting that unlike percentage method a precise thematic coefficient cannot be determined to know the elasticity of demand.

By the help of total expenditure method we can know whether the price elasticity is equal to one, greater than one, less than one. In such a method the initial expenditure before the change in price and the expenditure after the fall in price are compared. By such comparison, if it is found that the expenditure remains the same, elasticity of demand is One (De?I). If the total expenditure increases the elasticity of demand is greater than one (De>l). If the total expenditure diminished with the change in price elasticity of demand is less than one (De

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