Q1. Consider two countries—A and B. Country A is characterized by a command econ
ID: 1223309 • Letter: Q
Question
Q1.
Consider two countries—A and B. Country A is characterized by a command economy, absence of property rights, high entry barriers for new businesses, and forced child labor. Country B, on the other hand, is characterized by well-defined private property rights, a developed market system, and no entry barriers for new businesses.
a) Which of the two countries is likely to oppose creative destruction more? b) Why?
Q2.
Consider two countries: A and B. Assume that both countries are exactly similar to the year 2000. At the beginning of the year 2000, both countries decide to change their strategy for economic growth. Country A plans to encourage immigration and increase human capital in the economy to achieve sustained growth, while Country B decides to make significant investments in research and development to achieve sustained growth.
A) Which of the two countries is more likely to experience continued growth and why?
Explanation / Answer
Q1.
command economy is characterised as the system where government determines the economic activities such as, what production should be, how much production should be and the price. On the other hand in a free market where there is well defined private property rights the economic decisions are taken by economic agents not solely by government.
Out these two type of economies Country A is likely to oppose creative destruction more. Creative destruction is a concept of Joseph Schumpeter. In his work entitled "Capitalism, Socialism and Democracy" (1942) to denote a "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."
Therefore In a A there is less favourable environment for R&D, innovation because market is directed by government interest. There is no such competition due to high entry barriers for new business. The room for new idea is very small. On the other hand in Country B one can act depending on business requirements. Due to huge completion everyone wants to go far. This creates innovative idea and it is a contributor of creative destruction.
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