Think of a business firm you recently visited (such as Walmart, Home Depot, Red
ID: 1229082 • Letter: T
Question
Think of a business firm you recently visited (such as Walmart,Home Depot, Red Lobster, Barnes & Noble, McDonald’s, etc.). What motivated
the producers of all the individual products in the store to make them and offer
them for sale? How did the producers decide on the best combinations of
resources to use? Who made those resources available, and why? How does the
market determine who will get the goods and services? Who decides whether these
particular products should continue to be produced and offered for sale? How do
these decisions differ between capitalist and socialist systems?
Explanation / Answer
WHAT MOTIVATES PRODUCERS TO MAKE THE PRODUCTS AND OFFER THEM FOR SALE: in a free market economy then the motive would be to earn a profit and maximize their revenue... however in a command or planned economy the government produicng goods and services with the motive of providing a service, they are not profit motivated and often continue producing goods and services that are loss making... but in a mixed economy the public sector would continue producing as provision of services but the private sector would be profit motivated. HOW PRODUCERS DECIDE ON BEST COMBINATION OF RESOURCES TO USE AND WHO MAKES THEM AVAILABLE: they calculate the return of each factor of production and then whichever gives the highest return is used… for example if by employing 5 labour they are able to produce 10 units during an hour, this mean that the MPP of labour is 2 units… if during the same time of 1 hour 1 machine is able to process 15 pieces this means that the MPP of capital of 15… which is way better than that of labour… another factor is the costs of these factors of production is labour becomes cheaper than capital then more of labour will be used… also if productivity of capital increases then more output would be produced using capital instead of labour as it is producing more… moreover if the government grants subsidies to producers for capital equipment then production by capital means would increase. the resources are often obtained from other commercial producers. a product of one company can be a resource to the other. equally often resources are obtained naturally. sometimes provided by government with regulations. and of course, some companies make themselves available. HOW DOES MARKET DETERMINE WHO WILL GET THE GOODS AND SERVICES: This area of the marketing mix is usually called ‘distribution’ simply because its main concern is to distribute goods and services to the target customers. Organizations typically use a large number of strategies to get their goods and services to target customers rather than only one. Critical to understanding and managing distribution are the concepts of time and place utility. Time utility can be defined as having the product available when the customer would prefer to acquire it and place utility is having the product available where the customer would prefer to acquire it. While the internet can provide the ultimate in time utility for some products or services (for example, e-mail), for many products, it does not provide sufficient time utility. Buying a book over the internet still requires that the book be delivered to the buyer before ‘consumption of the product’. Therefore, it is generally faster to buy a book from a local retailer than to obtain the same book through the internet. WHO DECIDES WHETHER THESE PARTICULAR PRODUCTS SHOULD CONTINUE TO BE PRODUCED AND OFFERED FOR SALE" lets take the whole economy... if the country has free market economic system then it would be the firms that are producing those goods, they will have the power to decide whether to continue production or cease... however if it were planned or command economy then the decision will be taken the government as they will be in charge of production in the whole economy... lastly if it were a mixed economy then the final decision would take into consideration the phenomenon of market failure which exists when externalities arise... if a good is giving off negative externalities then it would be beneficial to stop its production, the government can do so by charging taxes over the goods or passing legislations... although if positive externalities were being given off then the firm would be encouraged to continue production by granting subsidies. HOW DECISIONS DIFFER FROM CAPITALIST AND SOCIALIST SYSTEMS: Capitalism is an economic system where resources — whether monetary or otherwise — are privately owned, whereas socialism is a system where goods are owned by the state or the public. Capitalism is founded on the belief that competition brings out the best in people. Socialism, on the other hand, believes that cooperation is the best way for people to coexist. The main difference between these two economic systems is the distribution and earning of wealth. In capitalism, everyone works for his own wealth, while in socialism everyone works for wealth which is distributed equally to everyone. The main thrust of capitalism is that resources are owned by an individual or a group of individuals. For instance, a company can be run by one person or a group of people. The resources of the individual is used and traded solely by his decision. It is the government’s job to ensure that each individual has a level playing field by introducing laws. The government is not allowed to interfere with the individual’s dealings, except to ensure that laws are being followed. In a capitalist society, each person owns their own labor. This labor can be sold to employers for a fee. In other words, everyone can get a job and can decide how much their labor is worth in wages. If the employer feels that the worker’s wage is too high for the amount of qualifications the worker has, the employer will not hire them and move on to someone else. Therefore, in a capitalistic society even work is a form of supply and demand. Under socialism, all resources are owned by all the people. This means that everyone has a say in how the resources are used. In socialism, everyone works for the good of everyone else, and there is no market. That is to say that everyone can get what they need when they need it, and there is no reason for them to pay for it. The government, in the form of a few elected officials, decides how the wealth is to be distributed to everyone. Those who believe in socialism believe that capitalism unfairly favors the rich. They believe that in capitalism, the power and riches are concentrated to a few who lord it over the rest of society. Socialism was born out of the desire to make things more equal. During the industrial revolution, the working class wanted to share the wealth factory owners were enjoying. Instead of a few people having most of the power, socialism endeavors to make everyone equal. Proponents of socialism believe that a socialistic society is the best way to care for everyone. They claim that if people worked for everyone else and received everything they needed, then their work ethic would increase. Proponents of capitalism believe that using people’s innate sense of competition is the best way to get the best product. They believe that if individuals are vying for a person’s dollar, they will produce the best possible product so that the person will choose theirs. Capitalists also tend to believe that if people will get the same products and care as everyone else regardless of how hard they work, then people will lose their desire to work.
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