Economic Final Report
Types of economic systems
Economic systems vary from one nation to another. Traditional economic systems refer to an economic system founded by tradition. The services and goods that people provide through the work they do, how people exchange and use the resources are trends that follow permanent patterns. These are not dynamic economic systems because there are minimal changes. In this economic system, people live on static standards. They do not enjoy much occupational mobility and financial mobility (Gregory and Robert 19). However, it is possible to predict economic relationships and behaviors. People are aware of what they are expected to do, why they trade, they know what others should give to them. In traditional economic systems, the interests of the community are of great priority than individual interests. People collaborate at work and labor proceeds are shared equally. However, in some traditional economic systems, individuals respect some personal privacy. However, it comes with restrictions as such individuals are given a strong obligation set, which they owe to the entire community. In the current world, traditional economic systems are being applied in the workplace among Aborigines of Australia and other minority groups (Conklin, 15).
The next economic system is the planned or command economic system: in this system, the economy is under government control. The government makes decisions about how to distribute and use resources. The state regulates wages and prices. The government determines the form of work an individual will do to some extent. In the past centuries, the state assumed different levels of controlling the economy. In some systems, the government exercise control exclusively on major industries. This means that the state exercises great control on the country’s economy. A good example of this economy is the Soviet Communist Union. In 1980s, the collapse of the bloc of communist led to the halt of a variety of command economies across the globe. However, Cuba is the only country holding onto its command economic system (Gregory and Robert 43).
From the market economies, individuals make critical economic decisions. Companies and individuals interact in the market place thus determining how good will is distributed and how resources will be allocated. Individuals make decisions on how their personal resources will be invested, the training and jobs they should take, what services and goods they should produce. Individuals make choices on what they want to consume. Within the pure precincts of a market economy, individuals dominate as the state is purely absent in economic affairs (Conklin 27).
A mixed system of the economy: this economic market integrates elements of command and market economy. Individuals in the market make most economic decisions. However, the state enjoys an active role in distribution and allocation of resources. Currently, America being among the most advanced countries is founded on a mixed economic system (Gregory and Robert 90).
Functions of economics systems
All systems of economy offer solutions to four major issues; they determine services and good that will be produced, they determine how goods are produced, the markets for the goods, how products and services will be allocate for present and future use, economic systems also determine future investment.
Key characteristics of economic systems
In Market economic systems, individuals control and own all the resources. Individuals competing for profits make economic decisions. Freedom is of great importance to individuals. Individuals make economic decisions based on primary principles of demand and supply. The underlying motive of increasing work is profiting compared to quotas. In command economies, the state or government is the central authority making decisions, as well as determines how resources will be allocated. It is relatively easy for change to take place. Individuals have relatively little freedom. Businesses do not compete and do not operate on the motive of gaining profits. In command economic systems, consumers have limited choices presented by the market place because manufacturers are quota oriented. Firms and factories are poorly run resulting in shortage in commodities in the market place. The state dictates jobs that individuals will do and sets prices of services and goods. Currently, countries that use command economic systems include North Korea and Cuba (Conklin, 61).
Traditional economic systems are mostly common in non-developed nations. Such systems are being practiced in countries such as Middle East, South America, Asia, and Africa. Economic decisions are governed by customs and technology is not applicable. Gathering, farming, and hunting are carried out using similar methods used in previous generations. Ethnic and family units motivate economic activities. Women and men carry out different economic tasks and roles. In mixed economic systems, individuals and the state participate equally in the process of making decisions. The state regulates and guides the production of services and products in the market place. Individuals make economic decisions that ensure workers and consumers are not exploited by unfair policies. This has been the most effective economic system in the provision of services and goods. In the current world, mixed economies include nations in Western Europe and the U.S.(Gregory and Robert 133).
How each economic system resolves resource allocation issues
In free economic markets, allocation of resources is determined by the willingness and ability of groups and individuals to pay more for goods. Such market principles are applied in the U.S. In command economic systems, the state dictates how resources are allocated. A good example is the U.S.S.R. In mixed economic systems, some resources are allocated using free markets and others are allocated through government dictatorship. A good example of a mixed economic market is whereby the state subsidizes certain economic activities in a free market (Conklin, 88).
The role of government in different economics systems
The government’s role in all the economic systems is provision of legal systems enforcing laws and protecting rights of private property. The government provides public goods where the private business sector and individuals cannot provide. The government is responsible for correcting market failures including economic slowdown and external costs. The government provides public goods such as defending people against security invasion, transportation systems such as highways and traffic lights, public education, clean water and air (Gregory and Robert 151).
Factors of production including examples and their role in the production of goods and services
These factors include labor, land, and capital inputs in production. Land is the primary source of all the material richness and immensely importance. Countries appreciate the richness of their land like climate, soil, and rainfall because they influence all economic aspects of life. Energy and materials are categorized as secondary production factors in classical systems of the economy because they originate from capital, labor and land (Keese, Pete and Ge-rard, 37). The factors are used in facilitating production of goods, but they do not form part of the product itself. Similarly, the production process does not cause any significance transformation on them. Land as a primary factor of production, entails the production site, as well as the soil and above all the natural resources. Land, as a production factor, is integrated with capital because land has minimal relevance in the manufacturing and service sector. Recent studies have established the differences between labor and human capital; human capital is the knowledge stock existing within the workforce. Another factor of production is entrepreneurship. Sometime, people describe the overall condition of technology as a production factor. There are different definitions of factors of production depending on empirical emphasis, theoretical purpose and school of economic systems (Lipsey and Harbury, 55).
Conklin, David W.; Comparative Economic Systems: Objectives, Decision Modes, and the Process of Choice. Cambridge [England: Cambridge University Press, 2009. Print.
Gregory, Paul R, and Robert C. Stuartl; Comparative Economic Systems. Boston: Houghton
Mifflin Co, 2010. Print.
Keese, Mark, Pete Richardson, and Ge-rard Salou. The Measurement of Output and Factors of Production for the Business Sector in OECD Countries: (the OECD Business Sector Database). Paris: OECD, 2011. Print.
Lipsey, Richard G, and CD. Harbury; First Principles of Economics. Oxford: Oxford University
Press, 2008. Print.