When it comes to the basics of the study of “Economics”, economists first ask themselves the basic Economic Problems of “scarcity”. To make this concept simpler, ask yourselves, there are only limited resources in this world but there are unlimited wants, so how does the economy know what to produce, how to produce and for whom to produce? It is normal that you can’t answer this question immediately because this is a lifelong mystery for all Economists to solve and if you can answer it then we wouldn’t even need Economics anymore… Imagine if the economy kept on producing more and more goods for an ever-increasing population without the consideration of the existing resources. What will happen? Well, the answer is simple, it leads to the corruption of the world as we are destroying the valuable natural resources on this planet. Therefore, society, must choose some things and give up others, which involves choice and opportunity cost, which is the best choice that is forgone. The choice of what to buy determines how resources will be used. Consider, for example, what is the opportunity cost of the decision of you to spend money on the university in the near future? What are you giving up? The answer might vary but it might be something like buying a house or buying a new car.
Now, let's go back to where we’ve started, the Economic Problem. Since humans first walked on the Earth, we have tried to organize how to manage the resources we have. Different economic systems have emerged as different solutions to the problem of dividing up limited resources to produce the goods that need to be distributed to the people within a society. There are currently 3 types of Economic Systems in this world: Free market Economy, Command Economy and Mixed Economy.
Let’s start with a quick briefing on the Free market Economy. In this system, decisions are all taken by private sector businesses meaning the government plays little or no part in the economic activity. Individuals and firms have the right to own their resources, for example, a farmer can own many acres of fields. Also, there is freedom of choice, businesses can use the resources in whatever way they like, workers can leave or enter jobs whenever they like and consumers can decide how they’re going to use their income. The most important takeaway of this system is that the decision to distribute resources usually depends on the pricing. So, the goods are distributed to people who want them through the price, those that can afford the goods will get them. So, people’s wants are satisfied but not everyone's needs are distributed.
Next is the Command Economy, in which the government have all the ownership and control of the resources and makes all the decisions on what, how and for whom to produce. An example is a farm would be set production targets and would be distributed appropriate resources accordingly by the government and they will distribute out the goods produced to the citizens. So, basically, everyone gets their necessities but lacks freedom and wants.
Finally, the Mixed Economy, as its name suggests, is a mixture of a pure Free Market Economy and a pure Command Economy. Most of the countries in this world operate as a Mixed Economy. This is the most ideal Economic System as the government can operate to produce and distribute people’s needs and goods that the private sector wouldn’t produce and the public sector businesses can operate to produce and distribute the wants of people.
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