What are Free Markets vs Planned Economies? | IB Microeconomics | IB Economics Exam Review

[@rittynanasele5686]

So helpful ..... simply explained.

[@sockscav]

Thanks, this was actually quite helpful

[@brad5907]

Hi, Thanks for adressing the topic of centrally planned economy which is kind of rare since te fall of USSR. I do agree with the definition of the two systems and i totally agree that all systems are mixed (even USSR by the way). However being a socialist i do not agree with all your conclusions (with all the due respect). At first the market economy show important instability that make real world problem even worst by add an economical crisis due to speculation. Crisis can even appear without a real world problem like in 1929 or 2008. Furthermore, due to the concept of price of anarchy, a capitalist economy necessarily leads humanity to a Nash equilibrium which will by definition be worst that a social optimum that a well made centrally planned economy should be able to reach. In addition to that, the reason why centrally planned economy failed that you gave is not exactly the one that i would have given. At first i do not completely agree that the economy failed (USSR failed politically, by absence of democracy). Russia was the poorest country in Europe in 1917 and in 1950 it was in direct competition with the USA. You say that predicting what to produce, how to produce it and how to deliver it is a complex task that and you compare it to predicting the market in a capitalist economy which no one can do. I think that planning how to produce in a socialist economy is probably more like managing a production line and logistic which many organisms do today. Private companies in a capitalist world do planning in intern (section don't sell products to each others). Managing what to produce requires big data which we now have. By the way i think this is part of the problem. A line of production is less complicated than predicting the market but still, such a big line of production was very hard to manage at this time. At the end it was based on linear programming but was not that well developped back then. The other problem was that in order to avoid doing this linear programming and decentralize, they used local indicators to measure the efficiency of the services. The incators that they used at the time was basic and often poorly engineered. For instance, USSR officials interviewed said in the bolt factories the total weight of bolt produced was the indicator to optimize. Therefore they made big ones that were useless. In a production line (either in a socialist or in a capitalist world) a section get told you should produce this amount of this bolt and this amount of this one. You mentionned that problem but i think that with recent progresses in computer sciences it would be way easier now to manage. Then there were democratic problems, the cost of the army due to the cold war, the failed war in afganistan and chernobyl that had a big role in the fall of USSR.

[@advayvenkat402]

@Ghost Yes due to the inablity of communism in the satellite states Russia had to lend a lot of money which would essentially lead to the fall of the USSR.

[@shawnradke]

Oh boy, here we go again with the we have more info now No you do not 8 billion people who live in different regions with different scarce resources means you could never have enough information throughput with a smaller group of central planners regardless of how smart they and technology are The market with free actors responds way quicker than any central planner would ever be able to

[@uggali]

@@shawnradke market crises don’t fix themselves. Sure we like the options we get in a free market but when most people are poor it’s mostly for show. So much goes to waste

[@uggali]

When cost of living and unemployment are so high who can afford to live by the free market? The welfare state, tariffs and price controls just patch holes in the crumbling system