Cambridge AS A Level Business Studies/ ZIMSEC Advanced Level Business Studies/ Business Enterprise Skills Notes: Economic Systems

  • To understand Economic Systems one needs to recall and understand the Economic Problem
  • As has already been pointed out during our discussion of the Economic Problem:
  • Needs and wants, when the two are combined, are unlimited or infinite
  • This means that if we were to list or enumerate our needs and wants the list would be endless or the number of them would be infinite
  • On the other hand, the factors of production ( otherwise known as resources) which are required in order to fulfil these needs and wants are unlimited
  • There are four factors of production:
    • Capital
    • Land
    • Labour
    • Enterprise
  • These are combined and consumed in various ways in order to fulfil human needs and wants
  • Again as already said these are finite and limited in nature
  • Which means that choices/decisions as to made specifically
    • What to produce-society has to decide what combination of goods and services to produce so as to satisfy their needs and wants. For example how much arable land to set aside for food crops versus commercial crops?
    • How to produce-Societies also have to decide the best combination of factors to create the desired output of goods and services. For example, how much land, labour, and capital should be used to produce essentials such as grain
    • For whom to produce-all societies need to decide who will get the output from the country‚Äôs economic activity, and how much they will get
  • This we said is known as the Economic Problem
  • At a National/State/Federal/Supra-national level the authorities also have to make a choice
  • The way they make these choices is mainly a matter of political belief and ideology
  • However, this ideology eventually results in what are known as Economic systems
  • Economic systems are also referred to as Economic Orders of the given geographical area
  • An economic system is simply an organised way in which a state or nation allocates its resources and apportions goods and services in the national community
  • Economic systems are simply meant as a way to provide an answer to the famed Economic Problem
  • An economic system, therefore, is used to determine what to produce, how to produce and for whom to produce within a given area (normally a country)
  • As said they tend to be heavily influenced by the politics and ideology of the given area
  • Even though the economic systems of different countries are unique they all tend to fit in three broad categories:

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