Consider the following HYPOTHETICAL scenario: Imagine an island economy that is periodically struck by an epidemic disease that affects only children. From past experience the islanders found that the disease strikes randomly, affecting 80% of all children. They also discovered a preventive antidote that reduces the chance of death if it is taken before the disease strikes. A child who has taken no doses of the antidote has a 90% chance of dying when he or she contracts the disease. With one dose of the antidote, the chance of death is reduced to 10%. Two doses reduce the chance to 8%; three doses reduce the chance to 6%; four doses reduce the change to 5%. Beyond four doses, the antidote has no further effect and the chance of death remains at 5%. Suppose that the island has 1,000 children and that at the first sign of a new outbreak of this disease, the people have produced 1,000 doses of the antidote.
a) What would be the market solution to this problem if the island economy operated as a pure market economy?
b) What would be a command economy solution to this problem if the island operated in this fashion?
c) Suppose that only 200 doses are available. What might the command economy solution be in this case?
2) Were swine flu to have become a serious worldwide pandemic, then current predictions indicated that insufficient amounts of the vaccine could be produced for everyone in the world. In this circumstance, how do you think existing vaccines would be distributed?
3) Over the past few decades, many economies that were once considered command economies have made or have begun to make the transition toward a market economy structure. From the point of view of a typical consumer,
a) What are some characteristics of a market economy that might make it more appealing than a command economy?
b) What are some characteristics of a command economy that might make it more appealing than a market economy?
c) Answer parts a) and b) from point of view of a business person such as a baker (or a banker).