Question

Hedrick Smith was a foreign correspondent for the New York Times who lived in the Soviet Union in the \(1970 \mathrm{~s}\), a period when the country had a planned economy rather than a market system. In a book he wrote about everyday life in the Soviet Union, Smith made the following observations about shopping in Moscow: At first it seemed \(\ldots\) that the stores were pretty well stocked. Only as we began to shop in earnest \(\ldots\) did the Russian consumer's predicament really come through to me. First, we needed textbooks for our children \(\ldots\) and found that the sixth-grade textbooks had run out.... We tried to find ballet shoes for our 11 -year-old daughter... only to discover that in this land of ballerinas, ballet shoes size 8 were unavailable in Moscow.... I tried to find shoes for myself. They were out of anything in my size but sandals or flimsy, lightweight shoes that the clerk, with one look at me, recommended against buying. "They won't last," he admitted. a. Judging by Smith's observations, briefly explain whether the Soviet Union achieved allocative efficiency in the production of sixth-grade textbooks, ballet shoes, and men's shoes. b. Can we tell from these observations whether the Soviet Union achieved productive efficiency in the production of sixth-grade textbooks, ballet shoes, and men's shoes? Briefly explain.

Short answer

The Soviet Union did not achieve allocative efficiency in the production of sixth-grade textbooks, ballet shoes size 8 and men's shoes, as the goods produced did not match the consumer demand. However, we cannot definitively determine from the available observations if the Soviet Union achieved productive efficiency in the production of these goods as there's no reference to actual production costs.

Step-by-step solution

Analyze Allocative Efficiency

The allocative efficiency deals with whether the goods produced match the goods desired by consumers. Looking at Smith's account, it can be concluded that the Soviet Union did not achieve allocative efficiency. The short supplies of sixth-grade textbooks and ballet shoes size 8 denote a failure to meet consumer demand in those areas. Additionally, the only shoes available in Smith's size were either sandals or flimsy varieties, again indicating that the supply did not meet the consumer demands.

Analyze Productive Efficiency

Productive efficiency refers to producing goods at the least cost possible. In Smith's account, there's no direct reference to the costs of production. Hence, based on the given information, it cannot be definitively stated whether the Soviet Union achieved productive efficiency in the production of sixth-grade textbooks, ballet shoes, and men's shoes

Summarize the findings

Based on the available information in Smith's account, it can be concluded that Soviet Union had not achieved allocative efficiency for the mentioned goods. As for productive efficiency, the provided observations don't give enough information to form a conclusion.

Key concepts

Allocative Efficiency

Allocative efficiency occurs when goods and services are distributed according to consumer preferences. This means that the availability of goods perfectly matches what consumers want. In the context of a planned economy like the Soviet Union, achieving allocative efficiency can be challenging. The government typically controls the production and distribution of goods, with the aim of fulfilling a planned quota rather than responding to real-time consumer demand. Hedrick Smith's observations in Moscow highlight a clear issue: desired goods like sixth-grade textbooks and specific shoe sizes were not available, indicating a misalignment between production and consumer desires. This scarcity suggests a lack of allocative efficiency, as the supplies did not meet the actual demands of the citizens. The absence of items that consumers wanted, such as textbooks and properly fitting shoes, is a sign that the system failed to allocate resources effectively according to what people need. This concept is crucial because it impacts consumer satisfaction and the overall effectiveness of a planned economic system.

Productive Efficiency

Productive efficiency is achieved when goods are produced using the least amount of resources and cost. It means producing at maximum output with given resources, minimizing waste. In a planned economy, this is theoretically managed by the state through meticulous planning and control. However, Smith's notes do not provide enough information about the cost of production or resource usage, making it difficult to determine productive efficiency in the Soviet Union.

Even if a certain amount of goods were produced, we cannot assess if this was done at the lowest cost possible. For productive efficiency to be evident, it must be known whether the goods are produced using the least amount of resources and time, ensuring resource optimization. This aspect highlights the importance of looking at production processes and resource allocation when evaluating an economy's efficiency. While Smith's observations focus more on the consumer perspective than production specifics, they still hint at inefficiencies in how resources might have been allocated and utilized.

Consumer Demand in Planned Economies

Consumer demand in planned economies is often overlooked due to the nature of centralized planning. In these systems, the government decides what is produced, how much, and at what price, rather than relying on market forces of supply and demand seen in market economies.

Smith's experiences shed light on the disconnect between consumer desires and available products. Even basic consumer goods sometimes do not align with public demand, leading to shortages and unmet needs. For instance, the unavailability of certain sizes of shoes and educational materials like textbooks exemplifies how central planning might miss the nuances of individual consumer preferences.

This misalignment can result in stores being stocked with unwanted goods, while popular items remain scarce. It highlights a challenge within planned economies – accurately gauging and responding to the population's dynamic needs and wants, which are crucial for consumer satisfaction. Understanding consumer demand is vital as it influences policy adjustments to better align with the citizens' preferences, aiming for a balance that might increase the perceived effectiveness of the central planning model.