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CAMBA, Andrea Melisa R.

MUSIC BUSINESS: Homework 1

1)

Many countries have moved from planned to market economy because of the fact that
despite having the advantage of guidance from the government in economic growth
which eventually leads to a stronger economy, it will still be very difficult to accurately
predict consumer preferences, surpluses, shortages and overall economic development.
This will cause an inefficient allocation of resources, meaning lower productivity and lower
general growth for a country.

But, even though this is the case, a country can easily make a turn-around and transition
back from a market to a planned economy. One instance is if, for example, there is a
growing rate of unemployment, or the gap between the upper class and lower class
continue to widen, maybe the smartest option is to let the government interfere and
straighten everything out; going back to a planned economy might be a better choice in
these situations that could and are already happening.

2)

When a surplus leads to a decrease of income:

A very simple example is the agri-products sector. When a specific crop is in season
(tomatoes during the summer, for example), it is likely to produce a harvest above the
demands of consumers which will also effect to higher competition among producers. The
tendency then, is to lower their pricing to counterbalance the supply to the demand.

When a shortage lead to increase of income:

It is very unfortunate that an agricultural country such as the Philippines deals with rice
shortage. According to the International Rice Information System, land area, population
growth and infrastructure are the three main reasons why the Philippines is currently the
largest importer of rice in the world. This low supply of rice could definitely be the root of
the continuous price increase of this commodity. If the supply of rice is low, the demand
increases, as well as its price.