Examination Tips
HKCEE F 4 Economics
Topic
2: The problems of resource allocation(資源分配問題)
In this chapter, we consider the three problems of resource allocation,
That is, what?, how? and
for whom?. These three problems are
different in nature under three types of economic system,
namely, the market economy, command economy and
traditional economy. We consider their implications to
three problems. In public examination, this chapter is
relatively less
important but student should understand
the differences in
the nature of three problems under
three kinds of
economic system.
2.1
Three Basic economic
problems**
In every
society, we have to face three basic
Economic
problems, that is : What to produce,
How to produce and for whom to produce.
(1) The problem of what to produce
Because of scarcity, we should decide what goods to
Produce, for example, toys or clothes.
Because of unlimited wants, we are unwilling to
produce
Either toys or clothes and we want both of them. Thus,
We should decide what quantities of each to be
produced.
In order to solve the problem of what to
produce, we
Should decide the
types and quantities of goods and
Services to be produced.
(2 The
problem of how to produce
Facing this problem,
we should decide how many
Labour, what types of
machines to produce the
Goods and services.
In order to solve the
problem of how to produce,
We should decide what method of production
Which minimizes the
cost.
(3) The problem of for
whom to produce
When goods are produced, we
should decide
Who will obtain them.
In order to solve the
problem of for whom to
Produce, we should
decide what types of
Allocation method of
good and services
Produced.
2.2 How Society Tackles Three Problems – by the Market
Mechanism***(96)
(1) By the market (price) mechanism (市場機制)
(a) Definition of the market mechanism
Under the market (price) mechanism, most of
Resources, but not all, are
privately owned.
People have the right to buy and sell their
property. The
use of market( price) mechanism
is to solve the problem of
resource allocation.
Production of goods and
services reflects the
Consumer Preferences. Hong Kong is a example
of using market mechanism.
(b) The problem of
what to produce
Under the
market (price) mechanism, the price
Guides the producers to decide what
types and
Quantities of goods and services to be
produced.
For
example, consumers have less demand for toys.
Demand
for toys decreases and thus, their prices
will also decrease. This causes the toy Producers
to reduce
the output of toys, according to changes
In demand
of toys.
(c) The problem of how
to produce
Under the market (price) mechanism, producers
Tend
to minimize the production cost. Factor
Price guides the producers to decide what types
Of
production method.
For
example, if wage rate of labour increases,
Producer will purchase more machines to
replace the labour.
(d) The problem of for whom
to produce
Under the market mechanism, the
goods
and
services are allocated by the price
competition. This
means that people who
are
willing to pay the price will get the
goods and services they want.
For
example, the price of toy is $50. John
is
willing and able to pay $40 but Paul is
is
willing and able to pay $50. Then, Paul
will
get the toy.
2.3 How society tackles three problems - by Government
Decisions ***(96)
(1) Definition of central planning(中央計劃)
Under central planning, most of resources,
but not all, are owned by the
government.
The problem of resource
allocation is
Solved by the commands (指令)
made by the
government. Production
of goods and
Services
are decided by the government
and, thus
does not reflect the consumer
preferences. China before the 1978’s
open-door
policy is a example of using
central
planning.
The resources that are owned privately
in command
economy is
less than that in market economy.
(2) The problem of what to
produce
Under
central planning, the government decides
what types and quantities of goods and services
to be
produced.
For
example, the government of China order
The
peasants to produce more cabbage during
1988 year.
(3) The problem of how to
produce
Under central planning, the
government decides
What
types of production method.
For
example, the government of China commands
The production units to adopt the labour-intensive
Method.
(4) The problem of for whom
to produce.
Under central planning, the government will
allocate the goods and services, by the non-price
allocation method.
For
example, in China, the government will allocate
the
rice, clothes to the people by using the rationing
method.
2.4 How
society tackles three problems - by Society’s Customs and
Traditions**
(1)
Definition of society’s customs and traditions
In traditional economy, the problem of resource
allocation is solved by the society’s customs and
traditions. The resources are allocated
by the well-
established rules. For
example, in traditional
Chinese family, fathers have the right to make
the decisions on production and the distribution
of scarce goods and services within the family.
(2) The problem of what to produce
What goods to produce is determined by
the society’s customs and traditions
(3) The problem of how to produce
How the good and services are
produced
is also dependent of the society’s customs
and traditions
(4) The problem
of for whom to produce
The distribution of goods and
services
is critically determined by the society’s
customs and traditions.
Examination Tips on
all sections:
1. Examination records
(a) In paper 1, students were examined to explain the
differences between command (planned) economy
and
market economy.
(b) In paper 2, the MC questions examined the student’s
understanding of three economic systems, their
differences, and their implications to three basic
economic problems.
2. Student
weakness in CE
Good
performance in explaining the differences
between command (planned) economy and market
economy.
3. Study Guide
To
prepare for paper 1 and paper 2, students
should be able to indicate the differences in
nature of three economic problems, under
different economic systems. In addition to
this, they should have a basic understanding
of three kinds of economic system and
their
differences.