Basic Economic Systems

Economic systems of the societyThe term society is derived from the Latin word 'socius' meaning friendship or companionship. Society is a community, nation or group of people who share the same traditions, institutions, rules and... More deal with the ownership, and control of means of production, and exchange, which has to do with the guiding principles of economic decisions.

These include;

1. What to produce.
2. How to produce.
3. For whom to produce.
4. Efficient use of resources.

1. What to Produce:

This is a problem of resource allocation. It has to do with the type of goods to produce, services to render, and their quantities in a given period. The scarce nature of societal resources, with numerous wants, calls for the need to determine the actual goods to produce, as well as the quantity to be produced.

The economic system practised by each society will determine how to solve this problem. In a capitalist economy, private individuals solve this problem, while in a socialist economy, the government decides on what to produce. 

2. How to Produce:

This has to do with the technique or methods to adopt. The level of technology, availability of resources, and comparative cost, or factor inputs, are necessary to consider, in deciding whether to make use of labour-intensive, or capital-intensive, techniques of production.

The method to adopt in production depends on the amount, that each factor of production is available. For instance, where labour is more available and cheaper than capital, it pays to employ labour-intensive techniques, and vice versa. 

3. For Whom to Produce:

This is a problem of distribution among the society, which relates to finding who gets to enjoy and get the benefits, of the goods and services produced. The method of distribution, of the total national product, is important because it will decide whether only a few people will be rich and whether the majority will be poor in society. In a socialist state individuals’ needs will be determined by the government. 

4. Efficiency in the Use of Resources:

Efficiency, in the use of resources, involves the way to achieve maximum output from a given amount of resources. Resources are very crucial to the rapid development of any economy. In all economic systems, waste should be brought to a minimum, in order to achieve growth and development. Bearing in mind that resources are scarce, relative to the demand for them, every society should seek to make the best out of the little that is available.

Efficiency is attained if a given combination of resources yields maximum output. If resources are efficiently used, then it will be possible to increase the production of goods and make everyone in the country better off.

Evaluation Question: