Basic economic questions  What to produce?  How to produce?  For whom to produce?

What to produce?  Raymond is going to start a restaurant, he has to decide what kinds of meals to be made.  In our school, we have 3 science classes and 2 arts classes.

How to produce?  Concerning production methods  Use Labour intensive production method or  Capital intensive production method ?  Use the LEAST COST production method  Farming : mainland China, USA  Banking: use ATM to reduce cost of staffs

For whom to produce?  Who should get how much of what?  The children, the elderly, the adults?  Which COMPETITIVE CRITERION will be used?  By price competition  By non-price competition (e.g. waiting, ability, age, lucky draw…)

Economic Systems  Market economy  Centrally planned (command) economy

Differences  Ownership of resources  Allocation of resources

Market economy  Most resources are privately owned  Most resources are allocated by the market forces (demand and supply)

Command economy  Most resources are owned by the STATE  Most resources are allocated by the government plans (commands)

Examples  Closer to a Market economy: USA, UK, Canada, Australia, Taiwan, S Korea, India, Philippines Indonesia….  Closer to a Command economy: Mainland China (before 1990s), Russia (before 1990s), Cuba, North Korea, Vietnam

China (previously a command economy)  What to produce?  The central government decides the types and quantities of goods/services to be produced  The central government orders more cabbages, resulting great surplus of cabbages (1989)

China (previously a command economy)  How to produce?  Government makes productions plans to production units  Government provides factors of production to production units  Government decides the production methods  Great Leap Forward: ask people to recast all ironwares at home

China (previously a command economy)  For whom to produce?  Prices are set by government  Wages are set by government  Competitive criterion: non-price competition  Goods or services are allocated by rationing (coupons issued to exchange goods or services)  Resource allocation : according to political ranks (in the communist party)

Modern China  Changes into a market economy  Member of World Trade Organisation (WTO)

Are they different in …?  Living standard  Income distribution (income gap between the rich and poor)  Inflation rate  Unemployment rate

Hong Kong is a mixed economy  Most resources are owned by private individuals  Most resources are allocated by market forces  Some resources are owned by the government e.g. airport, roads, public estates/schools/hospitals…  Some resources are allocated by government plans e.g. medical /educational /housing/ social services…

Our government’s philosophy  Non-intervention  Positive non-interventionist policy

Political systems  Capitalism  Communism