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An economic system is a system that involves the production, distribution and consumption of goods and services between the entities in a particular society. The economic system is composed of people and institutions, including their relationships to productive resources, such as through the convention of property.

Overview

An economic system is a set of methods and standards by which a society decides and organizes the ownership and allocation of economic resources. Many economic systems overlap each other in various areas. Basic and general economic systems are:

*Market economy (the basis for several "hands off" systems, such as capitalism).
*Mixed economy (a compromise economic system that incorporates some aspects of the market approach as well as some aspects of the planned approach).

*Planned economy (the basis for several "hands on" systems, such as socialism).

*Command Economy (a complete "hands on" system, such as the Soviet economic model).

*Traditional economy (a generic term for the oldest and traditional economic systems)

*Participatory economics (a recent proposal for a new economic system)

A market economy is the type of economy that the United States has and these questions are answered in the marketplace by the interaction of buyers and sellers. The producer would create a product that they think would sell well to the public in hopes to make a profit. The question of how to produce is usually based on the producer's choice. They might decide to produce a product with more workers or they might decide to produce it more with machines and computers to save on labor costs. The question involving for whom to produce is based on the buyer who decides what they want or need and what price they are willing to pay for it.

A market economy is great for motivating workers to work harder because they are only paid based on what they do.

A command economy is an economy where these questions are all answered by the government. Rather than giving individuals the chance to decide what they want or need, the government decides these questions for the country. This type of economy is difficult for the individual because it is impossible for the government to know exactly what is best for each and every citizen.

A mixed economy is an economic system that answers the three questions both in the marketplace and in the government. The economic system a country has is based on what is best for the country.

In a Command Economy or Planned Economy, the central or state government regulates various factors of production. In fact, the government is the final authority to take decisions regarding production, utilization of the finished industrial products and the allocation of the revenues earned from their distribution.

The government-certified planners come second in the hierarchy. They distribute the works among the labor class, who actually undergo the toiling part of the entire process. In case of a Command Economy, both state-owned and private enterprises receive guidance and directives from the government regarding production capacity, volume, modes of production and course of their actions. Planned economic system is broadly segregated into two groups – Centralized and Decentralized. Command Economy is more stable, guaranteeing constant exploitation of the existing resources. It is least affected by financial downturns and inflations. In a carefully planned Command Economic system, both surplus production and unemployment rates remain at a reasonable level.



The steady nature of Planned Economy encourages investments in long-standing project-related infrastructures without any possibility of financial recessions.

Command Economy is just opposite to the concept of Market Economy, with respect to the basic money-making approaches. Command Economic system prefers deliberate planning of the entire money-making process for better results.

A traditional economy is an economy that answers the three questions based on their social customs and how the society has dealt with these questions in the past. A country's customs can differ greatly to that of a neighboring country so traditional economies vary from one another.

Participatory economics, often abbreviated parecon, is an economic system proposed by activist and political theorist Michael Albert and radical economist Robin Hahnel. It uses participatory decision making as an economic mechanism to guide the production, consumption and allocation of resources in a given society. It is described as "an anarchistic economic vision", and it could be considered a form of socialism as under parecon, the means of production are owned by the workers.

What is the difference between macro- and microeconomics?

Microeconomics is the study of decisions that people and businesses make regarding the allocation of resources and prices of goods and services. Microeconomics focuses on supply and demand and other forces that determine the price levels seen in the economy.

Macroeconomics is the field of economics that studies the behavior of the economy as a whole and not just on specific companies, but entire industries and economies. While these two studies of economics appear to be different, they are actually interdependent and complement one another since there are many overlapping issues between the two fields.

Both micro- and macroeconomics provide fundamental tools for any finance professional and should be studied together in order to fully understand how companies operate and earn revenues and thus, how an entire economy is managed and sustained.

 

Task 7


Date: 2015-12-11; view: 1132


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