Term paper on Micro Economics

The difference in allocation of resources between capitalism, socialism, and communism. Centralized vs. decentralized allotment of resources

The allocation of resources is very important in regard to the redistribution of the national wealth. In this regard, it is possible to refer to three models of states which may have different allocation of resources. Capitalism is the system, when each person or company can allocate resources for its own benefits. As a result, the allocation of resources shifts toward property owners, who have control over the production process and own property and equipment with the help of which goods and services are produced. Property owners allocate their resources according to their wishes but, as a rule, they spend a considerable part of their resources on the maintenance and development of their business and on their personal needs. In such a situation, the government plays virtually no part in the allocation of resources and the allocation of resources is based on the actual demand and supply existing in the market. Hence, capitalism implies the decentralized allocation of resources, when each individual or company takes a decision how to allocate resources available to the individual or company.

The socialist and communist system implies that resources are allocated by the government. The socialist and communist system is based on the centralized allocation of resources. As a result, the state appoints state agencies and individuals responsible for the allocation of resources and they take the decision on how to allocate resources. In such a system, the level of the state regulation is extremely high and resources are allocated by the government.

7) 1) in inverse vs. positive relationships; 2) opportunity costs; 3) scarcity; association as causation; 4) fallacy of composition; 5) rational self-interest

Inverse and positive relationships are antagonistic by their nature. Inverse relationships imply the focus on pursuing one’s individual interests and goals. For instance, business partners run a company on the principle of parity but each partner pursues his/her individual goals and seeks benefits, regardless of the partner. The positive relationships imply the development of close cooperation and mutually beneficial interaction. For instance, the company can develop positive relationships with its customers. As a result, the company increases its sale rates, while customers receive goods and services they need.

Opportunity costs are very important and comprise costs the company can spend, if it fulfills the opportunity it has. For instance, the company normally manufactures 100 items but it has an opportunity to increase its production by 20 items. The costs of increasing the production by 20 items will be the opportunity cost. However, the company may not necessarily use this opportunity.

Scarcity is the shortage of resources that may cause the stumbling in the marketing performance of the company.

The fallacy of composition occurs, when one infers that something is true of the whole from the fact that it is true of some part of the whole.

Rational self-interest is the balance of interests of an individual or company, which is rational in regard to the balanced costs and benefits of such interests and maintenance of positive relationships of the individual or company with others. In such a way, rational self-interests implies the pursuit of self-interests to maximize benefits of an individual and maintain to positive relationships.

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