7
Introduction
Free market economies work by allowing private ownership of
firms. The owners of such firms produce goods and services by pur
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chasing resources. The motive for production is profit and thus firms
will tend to produce those goods and services which are in demand.
Figure 1.3
shows the market mechanism in action and how resources
are allocated away from the production of compact disc (CD) players
in favour of MP3 players in response to changes in demand.
Centrally planned economies do not allow the private owner
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ship of firms which instead are state owned. Production decisions
are taken by state planning committees and resources are mobilized
accordingly. Consumers generally have some choice of what to buy
but only from the range determined by state planners.
Mixed economies incorporate elements from each system. Private
ownership of firms tends to predominate, but production and con
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sumption of goods and services may be influenced by public own
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ership of some enterprises and by the use of taxes and government
spending.
The allocative mechanism has important implications for leisure
and tourism. The collapse of communism in the eastern bloc meant
that many economies are now in transition from centrally planned to
market systems. Tourism facilities, such as hotels and restaurants, in
these countries are having to revolutionize their organizational cul
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ture and become more customer oriented. The economies of Cuba
and China are still nominally centrally planned, but free enterprise
is continuing to flourish in China, and a visit to the Great Wall is
greeted by privately owned souvenir shops jostling for custom.
Plate 1
shows a McDonald’s outlet in Beijing and the expansion of
MacDonald’s into communist countries illustrates the gradual soft
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ening of communist ideology. In 1988, McDonald’s opened its first
restaurant in a communist country, in Belgrade, Yugoslavia (now
Serbia). In 1990, the first Soviet McDonald’s opened in Moscow
and was for a time the largest McDonald’s in the world. In the same
year the first McDonald’s opened in mainland China, in the city and
Special Economic Zone of Shenzhen, Guangdong province. However,