The Economic Problem faced by Iraq

Yr 12 Economics Essay
1) Outline the economic problem faced by Iraq
The economic problem of Iraq is how to use what little resources they have to satisfy the countries unlimited wants. Iraq is only just starting to recover from the brutal regime of Saddam Hussein and with the Americans trying to help rebuild the process is coming along steadily. The country is very oil rich but because of previous wars many of the oil refineries are badly damaged or destroyed, this means that they have very little to export. There was a time when the country was farmed but again under the regime of Saddam Hussein to much emphasis was put on oil production on no money was put into the agricultural sector, thus the industry went broke. This had led to a decrease in exports from agriculture but it has also meant that Iraq has had to import food that it would normally produce in its own backyard. This may not seem a bit issue but over a decade it will end up costing the country millions. The economic problem within Iraq is the same for all countries, how to use their limited resources to satisfy their unlimited wants. In their case though they have to rebuild the whole country with their resources and try and get the country to achieve a surplus budget.


2) Explain what type of economic system would best suit Iraq and how Iraq would decide the What, How and For Whom decisions faced by all societies.


Iraq needs a new economic system after the U.S.A overthrew the Saddam Hussein dictatorship. It is obvious that they will need a mixed economy as is outlined below. This will help them to eventually get back on their own two feet, without relying on other countries for foreign debt.


A traditional economic system is one in which individuals produce goods and services for the peoples own use and not for exchange. Customs and age old traditions play an important role in the way people cater for their needs. Iraq would need some sort of traditional economy to produce agricultural goods which once upon a time made up a significant part of the Iraq exports along with oil.


In a market economy decisions are made according to the market forces rather than tradition. Households and firms made spending decisions according to their own private wants. The What to Produce is decided by the interaction in the market place of consumers, business and government. With the power of What to Produce belonging to the people it gives them greater flexibility in what is created. Consumers make most What? decisions through casting dollar votes in the market. How to Produce is mainly decided by the managers of businesses who choose a combination of resources which is most efficient and cost effective. They produce at the lowest cost so as to receive the greatest profit.
For Whom to Produce is determined by peoples ability to pay. Those with the highest incomes receive the greatest access to what is produced. A Market economy would help Iraq because the people get to choose what is produced by casting dollar votes. It will also give them the ability to change products if necessary. The market price would be determined by supply and demand rather than on what the government say. Also most resources are privately owned and therefore the profits belong to the people and will not go the government. This will benefit the rest of the community because the money will stay within the community when it is spent and provide others with an income.


A planned economy is one where the basic economic decisions are made by government on behalf of the people and resources are owned in common, by the people and allocated by the government. The most important belief in the ideology of a command economy is that everyone should have equal access to the economys production of goods and services. This means that every citizen should receive the same wage. Decisions about What to Produce are made by a central bureau that sets plans for the production pf capital and consumer goods. Individuals have little influence over what is produced.
Decisions about How to Produce are also made by a central bureau. Productive resources are socially owned and controlled by the state. Methods of production are determined on the basis of what is socially desirable. The central bureau will choose the method that is best for the people and not necessarily the cheapest to produce. This might mean instead of using machinery to make a dam they will use human labour. This will benefit the community because a lot more people are employed, and more money is in the community. This would help Iraq because the people are going to be able to find jobs easily, and money will be available to anyone who is willing to work, this way more people will have a decent quality of life.
For Whom to Produce decisions are based on the social good of the community. There is greater equality of income distribution. The State determines incomes and prices. Allocation of resources is largely dictated by a central authority. This system provides few material incentives. Moral and social incentives play a larger role, such as worker of the month awards. This type of economy would be a great advantage to Iraq because the people would have all their needs in terms of food and clothing met by a central bureau. This would create an equal society with only a small gap between the rich and poor.


The best sort of economy for the country of Iraq would be a mixed economy. Utilizing the most effective parts of all the different kind of economies Iraq would have a very sound system operating in their country.
Mixed Economy of Iraq
SHAPE * MERGEFORMAT
Planned
Market
Traditional
This would be the place to operate for the people of Iraq. Here they have the freedom to produce a lot of items that they want, with little interference with the government. On the other hand the government has enough power to keep a firm eye on what is happening and also produce what it believes to be in the best interest of Iraq. Finally there is the traditional, which does not make up a very large part of the economy but is very important none-the-less. This will be used to sustain the country and give it something to build on in the future. As you can see you from the diagram above, a mixed economy if the only option for Iraq is they want to successfully rebuild their country.