In this unit you will get acquainted with the fundamental problems of the economy. The understanding of the concept will help you bring closer to the basic idea of the economy’s problems as well as remedies of such problems. In this unit you will get detailed description of what is an economic system, problems of economic system, factors of production, concept of production possibility curve, and the fundamental of allocation of resources in different types of economies. 1.2 AN ECONOMIC SYSTEM
Before we further move on we have to know about the sources of economic problems and a brief about the economic system. 1.2.1 Scarce Means and Unlimited Wants
Want is Want is an effective desire for a thing, which can be satisfied by making an effort for obtaining it. We have unlimited wants and as one want gets satisfied another arises. For instance, one may have the desire to buy a car or a flat. Once the car or the flat is purchased, the person wishes to buy a more spacious and designable car and the list of his wants does not stop here but goes on one after another. As human wants are unlimited, we have to make a choice between the most urgent want and less urgent wants. Thus the problem of choice arises.
Means also known as resources are limited. Means are the ways to derive the satisfaction of the various wants. For instance, money is an important means to satisfy many of our wants. As stated, means are scarce and as such these are to be used optimally. In other words scarce or limited means are to be judicially used and economized to get the maximum satisfaction. Another problem which is to be viewed is that resources have alternative uses i.e. the same resource can be used for more than one purpose. For example, money can be used either buying a laptop or a play station, all depends on how you perceive the urge of the desire or want you want to satisfy.
1.2.2 An Economic System or Economy
The term economic system can be defined as a set of techniques by which a society decides and create balance between resources and unlimited human wants. It therefore clearly signifies that being a part of social system not only natural resources but also man made resources also get included in the economic system. The economic system thus comprises of people and institutions like banks, markets etc.
The set of parameters thus used to determine the components of economic system is very dynamic and depends upon various factors like social, political, geographical and climatic etc. This shows that we can distinguish the two economies, no economy in the world will be same.
The difference can be judged on the basis of control of the economy For Example: The economic system of the country can also be based on the basis of involvement of society, more involvement of society in the economy and the decision are taken with a view of society and equitable distribution of wealth is characteristic of Socialist Economy. Contrarily if the economy is decentralized and the power lies in the hands of private enterprises then the said economy is capitalist economy.
Primarily the difference is done on the basis of the control but other things like growth, production of the economy can also be used to judge the economic scenario of the two economies, the production done in a fiscal year, purchasing power of the people and employment are primarily the factors considered.
1.2.3 Economic Agents
Economic agents are the key units of the economic system, the whole economy revolves around them. Producers, consumers, institutions and various other bodies come under this category. The agents are considered to be the most critical part of the economy as they guide and drive the economy by their actions.
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1. What is an economic system?
Ans. Economic system or economy is known a set of principles by which problems of economics are addressed, such as...