Chapter 2ECONOMIC SYSTEMS FOR RESOURCE ALLOCATION The problem of resource allocation are solved by the economic system at or! "# a #at"o#$Inthecaseofconstruction,resource allocationhasbeenstronglyinfuencedby thepublicsector.Centralgovernment determines:WHA! Whatgoodsandservicesareproduced and "hat #uantity!H$W! Ho" are goods and services produced!WH%&! When are goods and services produced!WH%'%!Where are goods and services produced!WH$! Whoconsumesthegoodsandservices that produced! E%o#om"% systems& To e'tremes(Free mar!et model(Ce#trally pla##ed model(M"'ed e%o#omy model(Free market economic system "s also %alled %ap"tal"st e%o#omy$ There "s #o )over#me#t "#volveme#t a#d the pr"vate o#ersh"p "s alloed "# th"s system$ *r"%e "s determ"#ed "# the mar!et freely by the dema#d a#d s+pply for%es$ *rod+%ers, %o#s+mers a#d reso+r%e o#ers all have %omplete freedom of %ho"%e over the ra#)e of prod+%ts bo+)ht a#d sold$(USA "s a very )ood e'ample$ (Centrally planned economy "s also %alled communism$ I# th"s model, there "s #o pr"vate o#ersh"p$ There "s )over#me#t "#volveme#t a#d #o pr"vate o#ersh"p "s alloed "# th"s system$ *r"%e "s determ"#ed "# the mar!et by the state$ *rod+%ers a#d %o#s+mers do#-t havea#y %ho"%e over the ra#)e of prod+%ts bo+)ht a#d sold$ All of the reso+r%es are o#ed by the state$( C+ba "s a very )ood e'ample$ M"'ed E%o#omy(M"'ed e%o#om"% system "s a %omb"#at"o# of %ap"tal"sm a#d %omm+#"sm$ There are m"'t+res of pr"vate de%"s"o# ma!"#) a#d the pr"vate de%"s"o#s e'"st alo#)s"de the %e#tral"sed %o#trols of state le)"slat"o# a#d e%o#om"% pla#s$(U. "s a very )ood e'amle$ 1) Efficiency(Efficiency:Reso+r%e+se"seff"%"e#the#e prod+%ethe)oodsa#dserv"%esthatpeopleval+e most h")hly$ Eff"%"e#%y "s a %o#%ept based o# val+e, a#dval+e"sbasedo#people-sfeel"#)s$ The %o#%ept "s d"v"ded "#to to parts&(*rod+%t"ve eff"%"e#%y(Allo%at"ve eff"%"e#%yEFFICIENCY, EQUITY and the ENVIRONMENT 2$ E/+"ty(E/+"ty s"mply mea# e/+al"ty$ E/+"ty relates to fa"r#ess a#d so%"al 0+st"%e$(E/+"ty "s also d"v"ded "#to to )ro+ps&(1or"2o#tal e/+"ty(3ert"%al e/+"ty 4$ E#v"ro#me#t(Compo+#d"#) the to ay trade5off betee# eff"%"e#%y a#d e/+"ty "s the e#v"ro#me#t$ The a)e#da of s+sta"#ab"l"ty has s")#"f"%a#tly ra"sed "ts prof"le$(I# e%o#om"%s, e#v"ro#me#tal )oods a#d serv"%es are ofte# d"s%+ssed as a mea#s of h")hl")ht"#) %ommo# problems of reso+r%e allo%at"o# re)ardless of the system$ The e'pla#at"o# rel"es +po# d"st"#)+"sh"#) betee# to %ate)or"es of %osts& (pr"vate %osts(e'ter#al %osts 6ra F") 2$7 here, pa)e 82(The trade5off betee# e/+"ty, eff"%"e#%y a#d the e#v"ro#me#t