Essay On Economic Systems

Last Updated: 17 Jun 2020
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An economic system is a system for producing, distributing and consuming goods and services, including the combination of the various institutions, agencies, consumers, entities (or even sectors as described by some authors) that comprise the economic structure of a given society or community. It also includes how these various agencies and institutions are linked to one another, how information flows between them, and the social relations within the system (including property rights and the structure of management).

It is an organized way in which a state or nation allocates its resources and apportions goods and services in the national community. An economic system is comprised of the various processes of organizing and motivating labor, producing, distributing, and circulating of the fruits of human labor, including products and services, consumer goods, machines, tools, and other technology used as inputs to future production, and the infrastructure within and through which production, distribution, and circulation occurs.

These processes are determined by the political, cultural, and environmental conditions within which they come to exist. The economic system involves investments, production, the allocation of economic inputs, distribution of economic outputs, land availability, households (earnings and expenditure consumption of goods and services in an economy), financial institutions and government policies. It involves a set of institutions and their various social relations.

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Alternatively, it is the set of principles by which problems of economics are addressed, such as the economic problem of scarcity through allocation of finite productive resources. An economic system is composed of people, institutions, rules, ND relationships, for example, the convention of property, the institution of government, or the employee-employer relationship. Today the dominant form of economic organization at the global level is based on capitalist mixed economies. Societies have developed different broad economic approaches to manage their resources.

Economists generally recognize four basic types of economic systems? traditional, command, market, and mixed. A traditional economic system is shaped by tradition. The work that people do, the goods and services they provide, how they use and exchange resource, etc. , all tend to follow long-established patterns. These economic systems are not very dynamic? things don't change very much. Standards of living are static; individuals don't enjoy much financial or occupational mobility.

But economic behaviors and relationships Economic Systems By Lillian what to expect from others. In many traditional economies, community interests take precedence over the individual. Individuals may be expected to combine their efforts and share equally in the proceeds of their labor. In other traditional economies, some sort of private property is respected, but it is restrained by a strong set of obligations that individuals owe to their community. No general rule exists for determining who has power within a group of people connected by kinship relationships.

However, patriarchy, age, and birth order often play a role in determining status among those living within a particular kinship production unit. In particular, it is often the case that if one is male, if one is older, and if one is the first born to someone who currently has a position of power, then one is more likely to achieve greater power within the family and, so, within the economy in kinship production. In traditional economic system the "economy' is not a separate sphere of society that operates according to its own logic.

Instead, economic activities are subordinated to power relationships, customs, and traditions that developed within the group of people connected by kinship connections. The other aspects of family life?child rearing, networks of loving relationships, religious beliefs, and so on?are not necessarily subordinated to the economic aspects of family production. Indeed, these other aspects can dominate the economic aspects of family life. Through most of history, traditional economic systems aimed to achieve survival of the kinship group.

That is, production within this economic system aimed to meet the Asia needs for food, shelter, and clothing by the production of all these things within the production unit. Most often, the production unit did not rely on outsiders for the production of basic needs. Further, through most of history notions of earning a profit were foreign to this economic system. Production was for use within the family rather than for sale to outsiders make a profit. Exchange?or trade?is generally unimportant within the kinship production unit.

Goods and services are transferred among members of the production unit, but most of these transfers are not classified as exchanges. For instance, many transfers are best seen as gifts made not with the intent of getting something in return but because of family obligation or, indeed, love. Sometimes "reciprocal exchange" does occur, in which what is given today creates a social obligation by the recipient to provide something back to the giver in the future. These gifts and reciprocal exchanges, however, are not necessary parts of the traditional economic.

Today you can find traditional economic systems at work among Australian aborigines, Intuit or those of the tea plantations in south India, and some isolated tribes in the Amazon. In the past, they could be found everywhere?in the feudal In a command economic system or planned economy, the government controls the economy. The state decides how to use and distribute resources. The government regulates prices and wages; it may even determine what sorts of work individuals do. Socialism is a type of command economic system.

Historically, the government has assumed varying degrees of control over the economy in socialist countries. In some, only major industries have been subjected to government management; in others, the government has exercised far more extensive control over the economy. A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency. A planned economy may be based on either centralized or decentralized forms of economic planning, but usually refers to a centrally-planned economy.

The goal of central planning is to enable planners to take advantage of more perfect information through a consolidation of economic resources when making decisions regarding investment and the allocation of economic inputs within production. In an entirely centrally-planned economy, a universal survey of human needs and consumer wants is required before a comprehensive plan for production can be formulated. The public body responsible for production and resource allocation would require the power to allocate factors of production in order to fulfill the plan, and for overseeing the distribution system of the economy.

The most extensive form of a planned economy is referred to as a command economy, centrally planned economy, or command and control economy. In such economies, central economic planning by the state or government directs all major sectors of the economy and roommates decisions about the use of economic inputs and the means of production. Planners would decide what would be produced and would direct lower-level enterprises and ministries to produce those goods in accordance with national and social objectives.

Planned economies are held in contrast to unplanned economies, such as the market economy and proposed self-managed economy, where production, distribution, pricing, and investment decisions are made by autonomous firms based upon their individual interests rather than upon a macroeconomic plan. Less extensive forms of planned economies include those that use indicative landing as components of a market-based or mixed economy, in which the state employs "influence, subsidies, grants, and taxes, but does not compel. Advantages The government can harness land, labor, and capital to serve the economic objectives of the state. Consumer demand can be restrained in favor of greater capital investment for economic development in a desired pattern. The state can begin building a heavy industry at once in an underdeveloped economy without waiting years for capital to accumulate through the expansion of light industry, and without asses when the government forced the share of GNP dedicated to private institution from eighty percent to fifty percent.

As a result, the Soviet Union experienced massive growth in heavy industry. Disadvantages of economic planning Inefficient resource distribution: surplus and shortage. Critics of planned economies argue that planners cannot detect consumer preferences, shortages, and surpluses with sufficient accuracy and therefore cannot efficiently co-ordinate production (in a market economy, a free price system is intended to serve this purpose). This difficulty was notably written about by economists Ludwig von Misses and Frederica Hayes, both of whom called it the economic calculation problem".

These opponents of central planning argue that the only way to determine what society actually wants is by allowing private enterprise to use their resources in competing to meet the needs of consumers, rather those taking resources away and allowing government to direct investment without responding to market signals. According to Tabor R. Mach, "Without a market in which allocations can be made in obedience to the law of supply and demand, it is difficult or impossible to funnel resources with respect to actual human preferences and goals. "

Suppression of economic democracy and self-management Economist Robin Hannah notes that, even if central planning overcame its inherent inhibitions of incentives and innovation, it would nevertheless be unable to maximize economic democracy and self-management, which he believes are concepts that are more intellectually coherent, consistent and Just than mainstream notions of economic freedom. Says Hannah, "Combined with a more democratic political system, and redone to closer approximate a best case version, centrally planned economies no doubt would have performed better.

But they could never have delivered economic self- management, they would always have been slow to innovate as apathy and frustration took their inevitable toll, and they would always have been susceptible to growing inequities and inefficiencies as the effects of differential economic power grew. Under central planning neither planners, managers, nor workers had incentives to promote the social economic interest. Nor did impeding markets for final goods to the planning system enfranchise consumers in meaningful ways.

But central planning would have been incompatible with economic democracy even if it had overcome its information and incentive liabilities. And the truth is that it survived as long as it did only because it was propped up by unprecedented totalitarian political power. " The classic (failed) example of a command economy was the communist Soviet Union. The collapse of the communist bloc in the late asses led to the demise of many Belabors, and Burma continues to hold on to its planned economy even today.

A market economy is an economy in which decisions regarding investment, production and distribution are based on supply and demand, and the prices of goods and services are determined in a free price system. This is contrasted with a landed economy, where investment and production decisions are embodied in a plan of production. Market economies can range from hypothetical laissez-fairer and free market variants, to regulated markets and interventionist variants. Most existing market economies include a degree of economic planning or state-directed activity, and are thus classified as mixed economies.

In the real world, market economies do not exist in pure form, as societies and governments regulate them to varying degrees rather than allow full self-regulation by market forces. The term free-market economy is sometimes used synonymously tit market economy, but, as Ludwig Reheard once pointed out, this does not preclude an economy from providing various social welfare programs such as unemployment benefits, as in the case of the social market economy. In market economies, economic decisions are made by individuals.

The unfettered interaction of individuals and companies in the marketplace determines how resources are allocated and goods are distributed. Individuals choose how to invest their personal resources?what training to pursue, what Jobs to take, what goods or services to produce. And individuals decide what to consume. Within a pure market economy the government is entirely absent from economic affairs. A market economy is a system where the market is believed to be crucial. Demand creates supply and the market largely finds its own level and is self-regulating.

The state adopts a laissez-fairer approach and gets involved as little as possible. Shareholders and private companies are the powerhouses of the economy. In its pure form, this system would be extreme with, for instance, little or no state help for people who are unemployed or homeless. In market economy two primary classes exist: "employees" and "employers. Employees (also called "workers") are the subordinate class. They are the direct producers who generate the surplus that goes to the employers. They often have little power in the social and political world.

Employers (also called "capitalists") are the dominant class: they receive the surplus and decide what to do with it. Employers are both the dominant class in the economy. They are also generally dominant in social and political matters within their country. Market economy exists when an economic system meets all four of the following criteria: Products are produced as commodities, Ђ Private ownership of capital goods used in production exists and is narrowly distributed in the population, and Wage labor is used in production.

In market system, products are made only if they bring profit to the owner of the firm. If buyers need a product, but the owner does not earn the profit he desires, the firm will not sell the good. A profit is earned if the revenue from selling these commodities is greater than the wages paid and the cost of materials and machinery used up. This profit is surplus: it is what workers produce above and beyond that necessary to pay their wages. Thus, the worker-capitalist relationship is a class relationship.

In market system, the capital goods (machines, buildings, tools) are owned by capitalists. The proportion of the population in a capitalist economy who has meaningful control over the economy's capital goods is small. Although indirect ownership of capital goods (via ownership of stocks and/or mutual funds) might appear to be relatively widespread, very few people in society are able to live off their ownership of capital goods. Most people in a market system economy can survive only by engaging in wage labor.

Wage labor is also called the "employer-employee legislations. " It exists when direct producers own themselves (unlike in slavery) but hire themselves out to capitalists in order to earn a wage or salary. Employees do not have sufficient access to income apart from employment to allow them to live even modestly?employees are not independently wealthy. Once employed, the employee enters a place of work in which the employer has almost all the power. The employer has almost one-sided power within the firm.

The only limits are those set by labor contracts (if one exists within the firm) or by law (which places few limits on the actions of business owners). Robin Hannah and Michael Albert claim that "markets inherently produce class division. " Albert states that even if everyone started out with a balanced Job complex (doing a mix of roles of varying creativity, responsibility and empowerment) in a market economy, class divisions would arise. The United States in the late nineteenth century was about as close as we've seen to a pure market economy in modern practice.

A mixed economic system combines elements of the market and command economy. Many economic decisions are made in the market by individuals. But the government also plays a role in the allocation and distribution of resources. Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, and many mixed economies feature a variety of government-run enterprises and governmental provision of public goods. Ender private ownership; that markets remain the dominant form of economic coordination; and that profit-seeking enterprises and the accumulation of capital main the fundamental driving force behind economic activity. However, unlike a free-market economy, the government would wield considerable indirect influence over the economy through fiscal and monetary policies designed to counteract economic downturns and capitalism's tendency toward financial crises and unemployment, along with playing a role in interventions that promote social welfare.

Subsequently, some mixed economies have expanded in scope to include a role for indicative economic planning and/or large public enterprise sectors. There is not one single definition for a mixed economy, but the definitions always involve a degree of private economic freedom mixed with a degree of government regulation of markets. The relative strength or weakness of each component in the national economy can vary greatly between countries.

The term is also used to describe the economies of countries which are referred to as welfare states, such as the Nordic countries. Governments in mixed economies often provide environmental protection, maintenance of employment standards, a standardized welfare system, and maintenance of competition. As an economic ideal, mixed economies are supported by people of various political recursions, typically centre-left and centre-right, such as social democrats or Christian democrats.

Mixed economies were also promoted by fascists in the form of corporatism, involving a tripartite arrangement between labor, business and the state for the purposes of diminishing class-conflict and unifying the national economy through class collaboration for the purposes of national unity. Supporters view mixed economies as a compromise between state socialism and free-market capitalism that is superior in net effect to either of those. A mixed economy is a more common economic system. It is where the market economy is given a fairly free rein, but the government will intervene sometimes in some areas.

So, some elements of the economy will be managed, and there will be some regulation of the excesses of the market. The state will intervene in specific areas, such as health, safety and employment law. A mixed economy is an economic system that incorporates aspects of more than one economic system. This usually means an economy that contains both privately-owned and state-owned enterprises or that combines elements of capitalism and socialism, or a mix of market economy and planned economy characteristics.

The term mixed economy is used to describe economic systems which stray from the ideals of either the market, or various planned economies, and "mix" with elements of each other. As most political-economic ideologies are defined in an idealized sense, what is described rarely if ever exists in practice. Most would not consider it unreasonable to label an economy that, while not being a perfect representation, However, when a system in question diverges to a significant extent from an idealized economic model or ideology, the task of identifying it can become problematic.

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