The lange-lerner model of market socialism of the text

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The Lange-Lerner model of market socialism of the text, is a system in which central planners try to arrive at competitive prices through trial and error. When a surplus of a good exists, the planners are supposed to lower its official price. When a shortage exists, the planners are supposed to raise its official price. The hope is to reach prices that just balance supply and demand. Industry and enterprise managers are told to set output where price equals marginal cost. One criticism of this system is that industry managers in collusion with the managers of firms will form a monopoly cartel, withholding supply in order to drive up the official price. In this way, we get monopoly rather than competitive pricing. When would managers do this? When would they try to keep the official price below the monopoly level? Explain. (Hint: Think in terms of taxation.)

Reference no: EM131194409

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