The system by which a country’s wealth is produced,
distributed, exchanged and consumed is called an Economy or economic system. The issue to be resolved is the basic economic problem - i.e. the resources are scarce in
nature and the wants are unlimited, the consumer has to choose from
alternatives).
Resource allocation (the decision to utilise the scarce
resources to produce goods and services to satisfy maximum wants) is the way to
resolve the problem.
The decision for Resources allocation of an economy or
a firm or an individual is done based on the following
questions
1) What to produce? 2) How to produce?
3) Where to produce? 4) To whom to produce?
The answering of the above questions is based
on opportunity cost. Since the wants are unlimited, and the
resources to satisfy the wants are limited one should choose from
alternatives. [Where Choice means
the selection of some wants from among a set of different wants.]
The system by which a country’s wealth is produced,
distributed, exchanged and consumed is called an Economy or economic system. The above questions are answered
by an economy using cost benefit
analysis on the basis of its opportunity
cost.
These decisions for resources allocation could be done
by government, or individuals or both together, and these resources need to be
allocated are also could be owned by government, or individuals or both
together. Therefore we can look into the features distinguishing an economic
system which allocate the resources.
The Features
distinguishing the economic systems are as follows. (1) Who owns the
land and capital? (i.e. factors of production other than human being –
labour and entrepreneur) (2) Who decide the production?
(i.e. What to produce? How to produce? Where to produce? To whom to
produce? )
The problems of resource allocation are solved in
different ways. If the resource allocation is determined by the Market forces
(demand and supply) it is Market/Capitalist
economic system. If the resource allocation is determined by the State
(government), it is known as a Command
/ Socialist economic system. If the resource allocation is determined by
both State (government) and the Market forces (demand and supply) together, it
is Mixed Economic systems.
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