ECONOMIC
SYSTEM
Niranjana prasad
Roll no; 5
WHAT IS ECONOMICS
Economics is a science of scarcity.
Scarcity means that we have unlimited wants but limited
resources.
Since we are unable to have everything we desire, we must make
choices on how we will use our resources.
Economics is the study of choices.
WHAT IS ECONOMY?
The economy is the large set of inter related
production, consumption, and exchange activities that
aid in determining how scare resources are allocated
the production, consumption and distribution of goods
and services are used to fulfil the needs of those living
and operating within the economy which is also
referred to as an economic system.
CENTRAL PROBLEMS OF AN
ECONOMY
The basic activities depend on the production,
distribution and deposition of services and goods that
can fulfil human requirements. It is known that human
wants and needs have no limit but, resources that
satisfy human wants are scares
This immensity of wants and scarcity of resources
gives birth to central problems of an economy
In every history of modern human civilisation every
economy has faced and tired solving these problems
CENTRAL PROBLEMS
ALLOCATION OF RESOURCES- A economic problem that an
economy predominantly faces is the allocation of resources due to
scarcity of available resources , it leads to the troublesome
situation of assigning these limited resources to produce goods
and services that can fulfil societal wants maximally. Thus it is
important to distribute the resources efficiently so that they can
cater to produce several commodities to satisfy the needs of
different socio economic groups in various manners
This decision need to be taken depending on the three central
problems of the economy
1:What to produce
2:How to produce
3:For whom to produce
WHAT TO PRODUCE
This problem refers to the decisions regarding the selection of
different commodities and the quantities that need to be
produced. Labour , land, machines, capital, equipment, tools and
natural resources are limited. So, it is not possible to fulfil
society’s every demand. Therefore, it is important to decide what
goods and services are required to be produced and in what
quantity?
HOW TO PRODUCE?
This problem is about the choice of techniques that need to be adopted and
used in the production of goods and services. The two majorly-used techniques
are-
[Link] Intensive Techniques-In this technique more units of labor in
proportion to capital are used in the production process.
2. Capital Intensive Techniques
On the other hand, the Capital Intensive Technique involves more
capital and less utilization of labor. For instance, footwear can be manufactured
either in factories where a large portion of manufacturing is carried out by
machines or by skilled teams of cobblers .
The solution to the problem of how to produce is based on the amount of
quantity that needs to be produced for a given level of resources. At the same
time, the cost of using a technique to produce goods is equally very
important. A producer will use that particular technology which is available at
minimum cost
FOR WHOM TO
PRODUCE
One of the most crucial problems of the economy is to decide
which commodities shall be produced for which sections of society.
WHAT IS AN ECONOMIC
SYSTEM
An economic system is a means by which societies or governments
organize and distribute available resources, services, and goods
across a geographic region or country. Economic systems regulate
the factors of production, including land, capital, labor, and
physical resources. An economic system encompasses many
institutions, agencies, entities, decision-making processes, and
patterns of consumption that comprise the economic structure of
a given community
TYPES OF ECONOMIC
SYSTEM
There are many types of economies around the world. Each has its
own distinguishing characteristics, although they all share some
basic features. Each economy functions based on a unique set of
conditions and assumptions. Economic systems can be categorized
into four main types: traditional economies, command economies,
mixed economies, and market economies.
TRADITIONAL
ECONOMIC SYSTEM
The traditional economic system is based on goods, services, and work, all of
which follow certain established trends. It relies a lot on people, and there is
very little division of labor or specialization. In essence, the traditional
economy is very basic and the most ancient of the four types .
Some parts of the world still function
with a traditional economic system. It is commonly found in rural settings in
second and third world nations, where economic activities are predominantly
farming or other traditional income-generating activities .
There are usually very
few resources to share in communities with traditional economic systems. Either
few resources occur naturally in the region or access to them is restricted in
some way. Thus, the traditional system, unlike the other three, lacks the
potential to generate a surplus. Nevertheless, precisely because of its primitive
nature, the traditional economic system is highly sustainable. In addition, due to
its small output, there is very little wastage compared to the other three
systems.
COMMAND ECONOMIC
SYSTEM
In a command system, there is a dominant centralized authority – usually the
government – that controls a significant portion of the economic structure. Also
known as a planned system, the command economic system is common in
communist societies since production decisions are the preserve of the
government .
If an economy enjoys access to many resources, chances are
that it may lean towards a command economic structure. In such a case, the
government comes in and exercises control over the resources. Ideally, centralized
control covers valuable resources such as gold or oil. The people regulate other less
important sectors of the economy, such as agriculture .
In theory, the command system works very well
as long as the central authority exercises control with the general population’s best
interests in mind. However, that rarely seems to be the case. Command economies
are rigid compared to other systems. They react slowly to change because power is
centralized. That makes them vulnerable to economic crises or emergencies, as
they cannot quickly adjust to changing conditions.
MARKET ECONOMIC SYSTEM
Market economic systems are based on the concept of free markets. In other
words, there is very little government interference. The government exercises
little control over resources, and it does not interfere with important segments
of the economy. Instead, regulation comes from the people and the relationship
between supply and demand
The market economic system is mostly theoretical. That is to say,
a pure market system doesn’t really exist. Why? Well, all economic systems are
subject to some kind of interference from a central authority. For instance, most
governments enact laws that regulate fair trade and monopolies.
From a theoretical point of view, a market economy
facilitates substantial growth. Arguably, growth is highest under a market
economic system .
A market economy’s greatest downside is that it allows
private entities to amass a lot of economic power, particularly those who own
resources of great value. The distribution of resources is not equitable because
those who succeed economically control most of them.
MIXED ECONOMIC
SYSTEM
Mixed systems combine the characteristics of the market and
command economic systems. For this reason, mixed systems are
also known as dual systems. Sometimes the term is used to
describe a market system under strict regulatory control.
Many countries in the developed
western hemisphere follow a mixed system. Most industries are
private, while the rest, composed primarily of public services, are
under the control of the government
Mixed systems are the norm globally.
Supposedly, a mixed system combines the best features of market
and command systems. However, practically speaking, mixed
economies face the challenge of finding the right balance between
free markets and government control. Governments tend to exert
much more control than is necessary.
THANK YOU
