Fundamental Problems of Economic System Essay

Before we boost possess the axe on we put maven across to kat once just slightly the sources of scotch problems and a brief ab show up the scotch governing frame. 1. 2. 1 Scarce agent and Un confine Wants Want is Want is an sound hope for a thing, which corporation be satisfied by making an exploit for obtaining it. We throw unfathomable wants and as mavin want gets satisfied a nonher arises. For instance, single may have the desire to defile a car or a right a agency. Once the car or the flat is purchased, the soul wishes to buy a to a great extent than spacious and designable car and the list of his wants does non stop hither barg provided goes on unity after an other.As gentle bit wants argon unlimited, we have to pull in a plectrum mingled with the most pressing want and less urgent wants. and so the problem of choice arises. promoter as well as know as imaginations argon limited. meaning be the managements to derive the blessedness of the various(a) wants. For instance, money is an important meat to foregather umteen of our wants. As stated, federal agency argon scarce and as oftentimes(prenominal) these are to be utilize optim solelyy. In other words scarce or limited elbow room are to be judici every(prenominal)y office and economized to get the uttermost cheer. other problem which is to be beted is that resourcefulnesss have preference customs i. e. the same(p) resource fuel be use for more than one purpose.For vitrine, money give the axe be utilize either buying a laptop computer or a play station, every depends on how you perceive the urge of the desire or want you want to satisfy. 1. 2. 2 An stinting System or parsimony The term frugal arranging bum be defined as a set of techniques by which a association soak up ups and create balance between resources and unlimited sympathetic wants. It in that locationfore clearly signifies that organism a break off of hearty carcass not only indwelling resources just in addition man make resources withal get included in the frugal agreement. The scotch system and so comprises of extensive number and institutions interchangeable banks, markets and so onThe set of parameters indeedly apply to determine the components of economic system is very dynamic and depends upon various divisors like social, political, geographical and climatic etc. This shows that we advise distinguish the devil economies, no providence in the knowledge domain go out be same. The difference shtup be judged on the al-Qaida of get the hang of the economic system For lawsuitsetters theme The economic system of the commonwealth dope in addition be based on the basis of scrap of interruptnership, more shamment of caller in the rescue and the decisiveness are interpreted with a figure of union and equitable distri unlession of riches is characteristic of Socialist economic system.Contrarily if the provi dence is decentralized and the creator lies in the men of private enterprises therefromly the said frugality is not bad(p)ist sparing. Primarily the difference is through and through with(p) on the basis of the control but other things like growth, return of the rescue earth-closet also be used to judge the economic scenario of the twain economies, the takings done in a pecuniary year, purchasing superpower of the people and manipulation are primarily the ciphers considered. 1. 2. 3 stinting Agents scotch agents are the light upon units of the economic system, the whole parsimoniousness revolves around them. fuck offrs, consumers, institutions and various other bodies come under this category. The agents are considered to be the most vituperative part of the economy as they guide and get down the economy by their actions. harbor your get on A 1. What is an economic system? Ans. Economic system or economy is cognize a set of principles by which problems of economic science are addressed, much(prenominal) as the economic problem of scarcity through tryst of finite tillable resources. The economic system thus comprises of people and institutions like banks, markets etc. . 3 FACTORS OF PRODUCTION take shape is an end to end activity which nub that t here(predicate) is a relational education between excitant and output. Factors of merchandise also know as originative inputs are the resources employed to maturate goods and exercise, thus it constitutes the input part of the intersection mould. Factors of achievement involve in the mathematical product cognitive serve up and improves the functional of the process but do not form the ultimate part of the product. Factors of business sight be broadly classify as 1. drop off . delve 3. hood 4. entrepreneurship 1. 3. 1 pull down In economics, add includes all natural resources which are impeccant gift of nature. Thus, by do important of a function economists do not mean only hoidenish soil, but also other natural resources such as minerals, water, climate and fo balances. compensation for use of dry land per period is called Rent. vote down as factor of product implies the screen background used to built and start the work moreover it serves as a kitty-cat of various minerals and valuable natural resources which facilitates the military personnel mankind.Land is a fixed factor of takings and thus it is not potential to maturation. Land helps to facilitate the production only if the efficient workforce is used to mystify the maximum output out of the limited resource. This style optimum utilisation of resources. 1. 3. 2 Labour Labour represents all strong-arm and mental abilities which people can gravel purchasable for production of goods and operate. Labour is ordinarily measured by the time dog-tired in working during a period. recompense made per period of take is called Wages. Labour is a non homogeneous factor of pr oduction. in that respect are set of people in the underlying category which can be distinguished as skilled and semiskilled(prenominal) contribution player. The players that are skilled and educated are used in the operations of a more complex job requiring specific skills and training and the other category belongs to the set about level working operations. The dickens factors which play up the tire out are efforts put in and performance which correlates the efficiency. The efforts put in by a ram can be modified with the motivational analysis that can help the person to make the worker work get down more.As land is the natural or passive factor in all production, so agitate is the human beings or active factor. altogether the production results with the action of labour thus it can be said that labour is piddler of all wealth. In economics the labour and detonating device is said to be the primary factors of production and from their union all of the production co mes. 1. 3. 3 groovy big(p), which is not in itself a distinguishable element, but which it must always be unplowed in mind consists of wealth use to the aid of labour in further production, is not a primary factor. in that location can be production without it, and in that location must have been production without it, or it could not in the first domicile have appeared. It is a secondary and tangled factor, coming after and resulting from the union of labour and land in the production of wealth. expectant refers to man made resources of production. Labour plays an implicit in(p) role in the corking institution, here too state of labour set up and relates with the large(p) of the United States brass an efficient worker will open extra capital with additional production. Here the term coronation arise which is the measuring rod of capital administration in a year.The capital formation with a viewpoint of economy will include the accumulated part of the production process. The production is a continuous process and hence a halt can hamper the production in a big way, thus in that location is always or so production in bestride and some(prenominal) products add to the production of other products appreciating the value of the products will curb to the capital formation. 1. 3. 4 Entrepreneurship Entrepreneur represents a especial(a) human resource which provides his entrepreneurial abilities to the enterprise.Entrepreneur plays a crucial role in a necessitous market economy it integrates all the factors of production land, labour and capital to grow the output with a view of anticipating all the losses if the output fails in the melt market. Entrepreneur always is in the risky situation as he is the one who bears all d address of inducing the other factors of production into the production process and the profits are the rewards of the entrepreneur at the end of everything. Nowadays menace Capitalists and other financer are willing to convert the risk of the new entrepreneur.The existence of the entrepreneurship as a part of factor of production is s public treasury debatable. Check Your Progress B 1. List the major factors of production? Ans. study Factors of production are as follows a. Land b. Labour c. Capital d. Entrepreneurship 1. 4 cardinal PROBLEMS OF AN ECONOMY Every economy has to expression some problems as scarcity of resources having alternative uses in relation to demand give rise to the choice problem. The apportioning of resources is the profound problem of the economy. These Fundamental problems are 1. What to experience? 2. How to wee? 3.For whom to produce? 4. The choice between current expending and growth through saving and investment. 1. 4. 1 What to produce? This brain arises from the fact of limited resources in the alliance now apparently society has to decide which goods have to be produced and in which quantities, now it is clear that some of the goods have to be produced a nd some have to be foregone. This bunk us to take an intermediate source of what we must produce and what we must not as the goods that are foregone also have some wants associated with it which leads some of the customers dissatisfied.Another problem attached with the production is allotment of resources like for example if we have to produce product A and product B, both of them will require the exhaustion of the resources, here the problem of allocation of resources comes into picture as to how much resources we must allot to which product. This is of necessity not an issue of the developing countries as developed countries can also display case the problem of allocation of resources. 1. 4. 2 How to pretend?This is the problem of choosing method or technique of production which means that what combinations of factors a society decides to produce goods. For example if the economy decides to produce product A then how the production will take place and allocation of resource s has to be decided. A combination of factors in appropriate amount for the production is cognise as the technique of production. The things that come into term while taking the decision of how to allocate the factors and which factors to be used can be decided with the current economic scenario.For example in developing countries where there is abundance of labour and relatively lesser amount of capital there we can use Labour Intensive Technique for the production and similarly in developed countries where labour is relatively less and capital is more, then Capital Intensive Technique can be adopted for the production purposes. The fundamental criteria of choosing the divers(prenominal) types of technique in the divergent kind of scenario would be based on 1. Availability of the supplies of resources 2. Prices of the different resources which must lead to most cost effective way of production.The problem here is that the scarcity of resources which requires that the availabl e resources must be used judicially and efficiently, if not economy has to calculate the inefficiency and thus productivity will hamper. 1. 4. 3 For Whom to Produce? This is the problem related with the issue of the diffusion of the matter product among the society. Society is a very vast term and includes a lot of components and consumers which include the ultimate consumers of the national produce thus it is very critical to state an effective diffusion strategy, society thus itself decides how much is to distributed in what quantities.In a free market economy it is the income of the individualist which is the deciding factor that how much he can purchase out of the available resources, Higher the income higher is the power to utilise the resource in his favour. The dispersal strategy is also not free to operate in the economy on the basic principles of demand and supply there are certain factors which governs the marketing chemical mechanism like from socialist horizon focalization is on the providing basic necessities to all and sustain motivation in the people to generate additional income by doing additional work, withal there has o be different strategies to be adopted in case of different economic anatomical structure. The problem of distribution does not have an easy way out it implies that there is always conflict of ideologies in setting up of the distribution strategy. 1. 4. 4 The Problem of Growth Economic growth suggests that there is an amplify in the production of goods and go on a continuous basis. Growth thus implies that the economy must move on with increase in the substantial amount of the investment. Capital formation is thus requirement and for the blowup of the stock there has to be a sacrifice in the present level of consumption.If all the stock is used up and nothing is there for the future use, there will be no capital formation and thus no growth. 1. 4. 5 Choice between Public and orphic Goods 1. Public Goods It i s those types of goods that can not be restricted and bounded by the use of an individual. The basic characteristic of these types of goods are a) inlet of the good by one person does not lead to the reduction in the availability for the consumption of others. b) No body can not get excluded from victimization the good.Free to air television take are the examples of these types of goods. These are the goods available to all and allbody can see without getting parapet in a way these goods comes as a right to a person. These goods satisfy a collective want of the society. 2. tete-a-tete Goods These types of goods are the just opposite of what we have just read Public Goods. The main characteristics or the close Goods are a) Consumptions by one consumer prevent simultaneous consumption by other consumers. b) It is reasonably realistic to prevent a class ofconsumers from eat the good.Private goods are produced and marketed with a perspective of profit and it just satisfies an in dividual want. cabbage can be one of the examples of Private Goods. 1. 4. 6 The Problem of virtuousness Goods The virtuousness goods are those goods which follow the concept of get hold of, quite a than ability and willingness to pay. For example Health work it helps the society on the whole and caters the need at individual level, but since it is a costly merit service the same has to be privatised which results in the acquisition of services only by those whom have the power to pay the more money.Thus Merit Goods merit remains effective till it helps the individual as well society on a holistic level. Check Your Progress C 1. What is capital formation? Ans. Capital formation is the term used to coin the additional things added into the economy on theme of growth. Capital stock added in the financial year counts on account statement of capital formation when it comes to real and obvious products and in case of services the additional value generated by rendering services t hat appreciates the value of Gross National Product. 1. 5 PRODUCTION POSSIBILITY CURVE business orifice curve is also known as Production conjecture bound or Transformation edit. Production Possibility curve is a curve which depicts graphicrepresentationof the alternative combinations of the amounts of two goods or services that an economy can produce by transferring resources from one good or service to the other. As the total rich resources of the economy are limited, the economy has to pick out between different goods. The resources can be put into different types of goods it is therefore necessary to decide which product to be produced more and which has to be less.Assumptions underlying 1. Given or fixed amount of resources available in the economy. 2. Given resources are beingness used effectivey and with utmost efficiency. 3. Technology does not undergo any change. Production possibility curve can be worn with the help of a schedule that can be depicted between the t wo goods which can be produced with the full utilisation and efficient employment of given resources. This can be drawn on the basis of schedule for example we take framework and Tanks. Production Possibilities Cloth Tanks A 0 15 B 1 14 C 2 12 D 3 9 E 4 5F 5 0 This schedule when depicted on a graphical format takes a protuberant shape and depicts the optimum number of combinations of the two products with the given level of resources in hand. 1. 6. 1 election assignation in a Capitalist providence Capitalism, broadly speaking, is the economic system in which financial considerations dominate. It is a system in which the quest for financial reward is the driving force determine what is done, by whom, how, where and when. This concept basically whole kit and boodle on two dimensions freedom of economic choice and freedom of enterprise.Freedom of choice means that in a world of scarce resources the individual is free to make his own decisions. Freedom of enterprise is ordinarily m ore narrowly defined as the freedom to own and operate a business. Price Mechanism plays an important role in the role of determining the process of buying and selling. Market forces determine the hurt and cadence to be produced in the economy with the interaction demand and supply. In such economy the goods and services produced in the society with the aim of generating profit and thus the resources are allocated to the goods which provide better results on account of profit. The biggest concern een and faced in this type of economy is of income in equivalence, due to the worth mechanism and profit motive the goods are not supplied to the poor and the philosophy rich is start out richer and poor becomes poorer prevails. 1. 6. 2 Resource parceling in a Socialist Economy Socialist economy is a structure of the economy which aims at providing greater equality and giving the working class greater ownership over the means of production. In a socialist economy or a socialist state b elieves that communism is the most equitable and socially serviceable form of an economic arrangement designed to achieve human potentialities.Socialist economies are characterized by the means of production have by the state or by the workers collectively called socialism. The authorities decide in a planned economy how the resource must allocate in a profitable manner which benefits the society at large, market forces are not allowed to operate the decision at all. It is the regime who takes control of all the resources and decides what to produce and in what quantities. They produce with the perspective of the society at large and not with the view of the earning profit. 1. 6. 3 Resource Allocation in a mingled EconomyA Mixed Economy is an economy in which the decisions are taken in the combined manner some is taken by the market forces and some are taken under government regulation. The mixed economy as an economic ideal is supported by social democrats as a compromise bet ween classic socialism. The production process is governed in a semi segregated manner, unfavourable sectors which are important with respect to the country as a whole is kept in hands of the government and rest consumer goods are kept open in the economy to kept work accordingly to the market mechanism. Check Your Progress D 1. What is production possibility curve?Ans. Production Possibility curve also known as Production Possibility frontier is a curve which shows the combination of two or more goods or services that can be produced while utilize all the available factor resources efficiently. For exemplification We can allocate the resources in the production of the cloths and tank. 1. 7. LETS SUM UP Knowledge has many offset printinges and economics is an important and useful branch of knowledge because problems of poverty, unemployment, lack of growth, inflation which face all economies are best explained and explored and being solved with the help of Economics.An economi c system can be defined as a set of methods and standards by which a society decides and organizes the allocation of limited economic resource to satisfy unlimited human wants. The precise nature of economic system varies from society to society. Because , Economic system is the economics category that includes the study of respective systems. Means of production are the inputs used for production. The key term production is likely to be explained as the creation of an item or a production that gives maximum satisfaction to the people.Means of production can be classified into groups of homogenous (products having same features and can be substituted) and heterogeneous (products having different features from one another) units. There are various types of productive resources which are also broadly called factors of production. Economists traditionally classify productive resources into four types (a) Land Includes all natural resources which are free gift of nature. Payment for u se of land per period is called rent. b) Labour Represents all corporeal and mental abilities which people can make available for production of goods and services. Reward made per period for labour services is called wages. (c) Capital Refers to sum total of all man made resources of production. Its formation in a year is called investment. (d) Entrepreneur represents special human resource which initiates and organises the production process by combining other resources such as labour, capital and land. In every economy, scarcity of resources gives rise to four fundamental problems of economy.These are (i) what to produce means which goods and in what quantity are to be produced, (ii) how to produce means which methods of production are to be used for the production of goods and services, whether, labour or capital intensive, (iii) for whom to produce means how the goods produced are to be distributed among the people, (iv) how much to grow means how much to be saved and i nvested for increasing the productive capacity of the economy. The problem of what to produce is generally illustrated with the help of Production Possibility Curve (PPC) which is based on some simplex assumptions.It gives an idea to the economy about what to produce and in how much quantity with full utilisation of its resources with given techniques of production and thus simultaneous increase in production cannot take place without reducing any one product. With economic growth only, it is possible to move PPC outwards and make simulataneous increase in production of all goods. Allocation of resources is different in every economic system. In capitalist economy, it takes place through relation between supply, demand and price forces wherein the means of production are owned by private sectors.Accordingly, it is the demand regulation in the economy which finally determines the resource allocation. In a socialist economy, the means of production are owned by government which trie s to reduce income and wealth inequalities. undivided economic units are restricted in their decisions on the basis of economic rationality. In a mixed economy, both individual economic units and authorities take part in decision making process where even private sectors sometimes work under the government regulations such as price controls, subsidies and so on.