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What is Economics

  • 5-09-2015, 21:35
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What is Economics

Economic systems - There are a number of ways in which a government can organize its economy and the type of system chosen is critical in shaping environment in which businesses operate.
An economic system is the way in which a country uses its available resources (land, workers, natural resources, machinery etc.) to satisfy the demands of its inhabitants for goods and services. The more goods and services that can be produced from these limited resources, the higher the standard of living enjoyed by the country's citizens. There are three main economic systems:
Planned economies - Planned economies are sometimes called «command economies» because the state commands the use of resources that are used to produce goods and services as it owns factories, land and natural resources. Planned economies are economies with a large amount of central planning and direction, when the government takes all the decisions, the government decides production and consumption. Planning of this kind is obviously very difficult, very complicated to do, and the result is that there is no society, which is completely a command economy. The actual system employed varies from state to state, but command or planned economies have a number of common features. Firstly, the state decides precisely what the nation is to produce. It usually plans five years ahead. It is the intention of the planners that there should be enough goods and services for all.
Secondly, industries are asked to comply with these plans and each industry and factory is set a production target to meet. If each factory and farm meets its target, then the state will meet its targets as set out in the five-year plans. You could think of the factory and farm targets to be objectives which, if met, allow the nation's overall aim to be reached.
A planned economy is simple to understand but not simple to operate. It does, however, have a number of advantages.
• Everyone in society receives enough goods and services to enjoy a basic standard of living.
• Nations do not waste resources duplicating production.
• The state can use its control of the economy to divert resources to wherever it wants. As a result, it can ensure that everyone receives a good education, proper health care or that transport is available.
Several disadvantages also exist. It is these disadvantages that have led to many nations abandoning planned economies over recent years:
• There is no incentive for individuals to work hard in planned economies.
• Any profits that are made are paid to the government.
• Citizens cannot start their own businesses and so new ideas rarely come forward.
• Asa result, industries in planned economies can be very inefficient.
A major problem faced by command or planned economies is that of deciding what to produce. Command economies tend to be slow when responding to changes in people's tastes and fashions. Planners are likely to underproduce some items as they cannot predict changes in demand. Equally, some products, which consumers regard as obsolete and unattractive, may be overproduced. Planners are afraid to produce goods and services unless they are sure substantial amounts will be purchased. This leads to delays and queues for some products.
Market economies - In a true market economy the government plays no role in the management of the economy, the government does not intervene in it. The system is based on private enterprise with private ownership of the means of production and private supplies of capital, which can be defined as surplus income available for investment in new business activities. Workers are paid wages by employers according to how skilled they are and how many firms wish to employ them. They spend their wages on the products and services they need. Consumers are willing to spend more on products and services, which are favoured. Firms producing these goods will make more profits and this will persuade more firms to produce these particular goods rather than less favoured ones.
Thus, we can see that in a market economy consumers decide what is to be produced. Consumers will be willing to pay high prices for products they particularly desire. Firms, which are privately owned, see the opportunity of increased profits and produce the new fashionable and favoured products.
Such a system is, at first view, very attractive. The economy adjusts automatically to meet changing demands. No planners have to be employed, which allows more resources to be available for production. Firms tend to be highly competitive in such an environment. New advanced products and low prices are good ways to increase sales and profits. Since all firms are privately owned they try to make the largest profits possible. In a free market individual people are free to pursue their own interests. They can become millionaires, for example. Suppose you invent a new kind of car. You want to make money out of it in your own interests. But when you have that car produced, you are in fact moving the production possibility frontier outwards. You actually make the society better-off by creating new jobs and opportunities, even though you become a millionaire in the process, and you do it without any government help or intervention.
A cornerstone of the market system is that production alters swiftly to meet changing demands. These swift changes can, however, have serious consequences. Imagine a firm, which switches from labour-intensive production to the one where new technology is employed in the factory. The resulting unemployment could lead to many social as well as economic problems.
In a market economy there might be minimal control on working conditions and safety standards concerning products and services. It is necessary to have large-scale government intervention to pass laws to protect consumers and workers.






critical – kritik, böhranlı

shaping – formalaşma

satisfy – qane etmək, razı salmaq

equally – bərabər

consumption – istehlak

ahead – irəlidə

alters – dəyişmək

intervene – qarışmaq, müdaxilə etmək

conditions – şərait

concerning products – məhsullara aid


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