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Chapter Two reflections
Every economy encounters economizing problem like how to determine what goods to produced, how the goods are produced, who consume them, how supply and demand of goods are managed, and how technology is used to promote the progress of economy resources. Fundamentally, two types of economic system are used to combat the economizing problem. An economic system where government owns most resources, controls and coordinates most economic activity is the command or communism economy system. Secondly, the capitalism or market system is where individuals in a given society own resources, capital, and the autonomy to engage in economic activity.
In a market system, competition is the driving force or the mechanism of control in the market economy. This allows firms to seek alternative technique and use the lowest-cost of production to produce goods and services. On the other hand, command system is like a one way street where the government is the central planner. It does not create room for products improvement, limited goods are produced, and no competition. The market system allows the invisible hand to coordinate the resources of household and business. Another interesting concept is the Circular Flow Model of the dynamics of market economy. This model explains how resources flow from households to businesses through the resources market, and how businesses sell products to households through the product market. In addition, monetary flows or a real flow is counterclockwise of the circular flow model where households receive income or wages from businesses through the resource market, and in return, businesses input their expenditures into producing goods or services and receive revenue from households through products market (McConnell, Brue & Flynn, 2009).
Reference:
McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, problems, and policies (18th ed.). Boston, MA: McGraw-Hill Irwin
Every economy encounters economizing problem like how to determine what goods to produced, how the goods are produced, who consume them, how supply and demand of goods are managed, and how technology is used to promote the progress of economy resources. Fundamentally, two types of economic system are used to combat the economizing problem. An economic system where government owns most resources, controls and coordinates most economic activity is the command or communism economy system. Secondly, the capitalism or market system is where individuals in a given society own resources, capital, and the autonomy to engage in economic activity.
In a market system, competition is the driving force or the mechanism of control in the market economy. This allows firms to seek alternative technique and use the lowest-cost of production to produce goods and services. On the other hand, command system is like a one way street where the government is the central planner. It does not create room for products improvement, limited goods are produced, and no competition. The market system allows the invisible hand to coordinate the resources of household and business. Another interesting concept is the Circular Flow Model of the dynamics of market economy. This model explains how resources flow from households to businesses through the resources market, and how businesses sell products to households through the product market. In addition, monetary flows or a real flow is counterclockwise of the circular flow model where households receive income or wages from businesses through the resource market, and in return, businesses input their expenditures into producing goods or services and receive revenue from households through products market (McConnell, Brue & Flynn, 2009).
Reference:
McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, problems, and policies (18th ed.). Boston, MA: McGraw-Hill Irwin