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The Market Mechanism

The document discusses how economic decisions are made in a mixed economy like the Philippines. It explains that: 1) The private sector uses market mechanisms like supply and demand to determine what and how much to produce. 2) The public sector and areas with state monopolies use central planning to decide production. 3) A combination of market forces and state intervention influence decisions around production techniques, resource allocation, and distribution of goods and income.

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Janna Marie Calabio
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123 views

The Market Mechanism

The document discusses how economic decisions are made in a mixed economy like the Philippines. It explains that: 1) The private sector uses market mechanisms like supply and demand to determine what and how much to produce. 2) The public sector and areas with state monopolies use central planning to decide production. 3) A combination of market forces and state intervention influence decisions around production techniques, resource allocation, and distribution of goods and income.

Uploaded by

Janna Marie Calabio
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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The market mechanism (i.e.

forces of demand and supply) helps the private


sector in deciding what commodities to produce and in what quantities. In
those spheres of production where the private sector competes with the public
sector, the nature and quantities of commodities to be produced are also
decided by the market mechanism.

(ii) The central planning authority decides the nature and quantities of goods
and services to be produced where the public sector has a monopoly. In the
case of consumer and capital goods, commodities are produced in anticipation
of social preferences. Prices are fixed by the central planning authority on the
principle of profit-price policy.

There are administered prices which are raised or lowered by the state. For
public utility services like electricity, railways, water, gas, communications,
etc., the state fixes their rates or prices on no-profit no- loss basis. The
problem of how to produce goods and services is also solved partly by the
price mechanism and partly by the state. The profit motive determines the
techniques of production in the private sector. At the same time, the central
planning authority intervenes and influences the working of the market
mechanism.

The state guides and provides various facilities to the private sector for
adopting such techniques of production which may reduce costs and
maximize output. It is the state which decides where to use capital-intensive
techniques and where to use labour-intensive techniques in the public sector.

The problem for whom to produce is also decided partly by the market
mechanism and partly by the central planning authority. In the private sector,
it is the market mechanism which determines what goods and services are to
be produced on the basis of consumer preferences and incomes. Since a mixed
economy aims at achieving growth with social justice, the allocation of
resources is not left entirely.

The state intervenes to allocate resources and for the distribution of income.
For this purpose, it adopts social security programmes and levies progressive
taxes on income and wealth. In the public sector, the state decides for whom
to produce in anticipation of consumer preferences.
Suppose there is a sudden new trend for high school students all over the
Philippines to ride bicycles more. How would the price system decide "
who should get what is produced? How would the inputs used in bicycle
production be affected?

Since the Philippines has a mixed economic system which includes a


variety of private freedom, combined with centralized economic planning
and government regulation. In the case of consumer and capital goods,
commodities are produced in anticipation of social preferences. Prices are
fixed by the central planning authority on the principle of profit-price
policy. The problem of how to produce goods and services is also solved
partly by the price mechanism and partly by the state. The profit motive
determines the techniques of production in the private sector. At the same
time, the central planning authority intervenes and influences the working
of the market mechanism. The state guides and provides various facilities
to the private sector for adopting such techniques of production which
may reduce costs and maximize output. It is the state which decides
where to use capital-intensive techniques and where to use labor-
intensive techniques in the public sector. The problem for whom to
produce is also decided partly by the market mechanism and partly by the
central planning authority. In the private sector, it is the market
mechanism which determines what goods and services are to be produced
on the basis of consumer preferences and incomes. Since a mixed
economy aims at achieving growth with social justice, the allocation of
resources is not left entirely. The state intervenes to allocate resources
and for the distribution of income. For this purpose, it adopts social
security programs and levies progressive taxes on income and wealth. In
the public sector, the state decides for whom to produce in anticipation of
consumer preferences.

The inputs used in bicycle production would be greatly affected because


there is what we called scarcity of resources. This means that the greater
the demand of supply, the lesser and lesser will the resources will
become. Even though that a certain company is willing to pay for greater
amount in order to get a particular raw material, there will be a shortage
of supply and this can lead to a higher price of a certain product.

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