ECON-E 201 Lecture Notes - Lecture 11: Price Controls, War Communism, Price System
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Econ201 lecture 11 socialism vs. capitalism/price controls. Socialism: means of production are centrally controlled, creates incentives problems, more importantly, creates knowledge problems. No rational economic calculation: one 2 ton nail, instead of thousands of 1 pound nails (does not make sense) Soviet union (1917-1921: closest example to socialism, citizens resorted to black market. Prices are a signal wrapped in an incentive : prices align self-interest with social interest. The price system: consumers compare value of their use against value of a good"s alternative uses. If consumers use is a lower value than the alternative uses, then the consumer will give up that good: market price splits use of goods into two: satisfied and unsatisfied demands. The role of loss: losses are also a signal, cannot provide lower costs and better products, suffer losses. In a successful economy, there will be many unsuccessful firms.
