What are the two main problems a central planner (who would dictate resource use

Question

What are the two main problems a central planner (who would dictate resource use and the allocation of goods across consumers) would face in trying to ensure an efficient allocation of resources? V. Answer the following questions. A sentence or two should suffice. An industry emits an effluent as part of its production process. Comment on the effectiveness of a tax on the output of the industry as a means of achieving economic efficiency in resource allocation. What is the rule for efficient allocation of resources to the public sector in the case of a public good?

Explanation / Answer

5. First problem: The information on what the preferences of the consumers are and the production functions of the resources is always incomplete and inaccurate. The information is used only as an aproximation.

Second problem: In almost every economy, millions of goods are sold. It is technically impossible, even after taking into account the advancement that the world of computer software technology, to incorporate all these goods into the calculations undertaken by the central planner. The only solution is that necessary and major goods be given importance and rest of the goods be left out of the model. This leads to coordination problems.

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