"Resources are scarce but demands are unlimited." (Anderton, 2000: 273) Therefore, resources have to be allocated in terms of what to produce, how to produce, and for whom to produce. (Case & Fair, 2004) Economic system is a way of answering the three basic economics problem. "An economic system is a collection of laws, institutions and, activities, that provide a framework for economic decision-making." (http://ecedweb.unomaha.edu/lessons/lesson2.htm) Each part of it interacts with each other in the sense that they are the ones who creates and runs an economic system. (Anderton, 2000) Individually there are consumers that consume outputs that are produced by producers in order to satisfy their wants. In a much bigger extent are the firms or trade unions that have bigger influence in the economic system. The most influential actor' in an economic system is the government who exercise power and maintain the economic stability. (Anderton, 2000: 273)
There are three types of economic systems, first is the market economy that works according to the price mechanism, next is the planned economy where centralisation is being applied. Of course, both of the mentioned economic systems do not exist in pure form but in a fusion form. "That is the mixed economy, where both private sectors and governments are involved in process of resource allocation." (Bamford, 2002: 29-31)
Allocation of Resources in Planned Economy
"In a planned economy, factors of productions or the resources are under control of the government or the planner." (Anderton, 2000: 273). There is no private ownership and the government is the one who decides what to produce, how to produce and for whom to produce through a planning process.
First, planners have to decide what is to be produced by making surveys on the needs of the people. Planners have to make decisions on the amount of goods manufactured such as the breads, shoes, clothing and so on. They are assumed...