Economic systems define how governments and businesses unite to provide consumers with goods and services (Fine, 2016). It is basically a decision-making structure of the economy of a country that shapes the production, allocation, and distribution of economic goods and services. Businesses are affected by the economic systems prevailing in the country’s they operate in. Economic systems answer the three basic economic questions of what, how, and for whom to produce?
In a communist economy, the government determines what to produce, how to produce, and for whom to produce. The number of firms in a planned economy are few compared to a free market economy and hence the variety of products offered to consumers are few. Small businesses also do not exist in a communist society since government does not offer citizens the freedom to run their own businesses.
In free market economies, people are free to launch new businesses and run them with the aim of maximizing profits. Therefore, there exist many private businesses of different sizes. The products offered in free market economy are diverse since business people differentiate their products so as to compete against their peers (Phaneuf & Requate, 2016). The prices of products vary depending on seller and quality of the item. However, the market forces of demand and supply is the main mechanism that determines the price and quantity supplied.
The economic system dictate how to produce goods and services. These include the technology used and the materials used. The government has the capacity to invest in expensive technologies unlike private investors. However, government firms tend to be managed poorly since managers lack the incentive to work like those in the private sector (Miller & Benjamin, 2017). The result of this is a possibility of greater economic growth in free market economies than in planned economies. The postal services business is an example of a publicly owned business in most countries including Australia. The entry of private investors in to the business threatened the government because private businesses are actively managed. Shareholders of privately owned enterprises hold their managers accountable for their actions encouraging them to work.
The type of economic system determines for whom to produce a product. In planned economies, the government decides whether to export their products or sell to the local buyers. Most countries prefer to satisfy the local market before seeking markets outside. In a free market economy, private individuals might seek foreign markets for their business as they would wish provided they are not against government laws (Phaneuf & Requate, 2016).
Are there pure economic systems in the world today?
Yes, But few. The world has become a global village to an extent that the world economies of countries are intertwined. It has become nearly impossible to run a pure economic system (Tuker , 2018). Countries that claim to be free market economies such the United States have some characteristics of a socialism. The government is responsible for protecting the general welfare of its citizens and thus might interfere with the free market system while ensuring that essential goods and services are available for its citizens. The United States government uses central planning approach to allocate resources to sectors such as security and health. The social protection program that aims to ensure affordable healthcare contravenes the free market economic system.
North Korea is the only existing country that operates as a pure communist economy. The country’s economy works as a tightly controlled command market economy. To successfully, operate a pure economic system, a country should be ready to operate under tight rules that prevent foreign intrusion. Cuba and China which are recognized as communist states are not purely communist economies since they have features of capitalism (Tuker , 2018).
Do any use only a single system?
Yes. North Korea is the only country whose economic system is purely planned. The country operates on a tight economic and political framework. The country has tamed economic interference from foreign countries and remained loyal to its communist economic system.
The article published on History.org discusses economic systems and their characteristics. The article concurs with what I thought concerning economic systems. It classifies economic systems as capitalist, communist, and socialist. In highlights that in a capitalism, businesses are mainly privately owned. The government has little involvement in business operations in the country with supply and demand forces being the major determinants of how resources are allocated. This economic system is commonly known as capitalism. In such economies, competing private investors make decisions concerning investments and distribution and allocation of factors of production that include capital, land, and enterprise (ushistory.org, 2018). Private investors are highly motivated to increase their wealth and thus work hard to maximize business profits.
Communist economic system is characterized by government control over factors of production. The state dictates how goods and services are produced, allocated, and distributed within the country. The state owns all property in the country because private ownership of factors of production is not allowed. In a socialist economy, government restricts the ownership of some factors of production from private individuals (ushistory.org, 2018). Essential industries such as health and banking might be government- owned while private ownership is allowed for other sectors.
How a mind map can be used in business
Mind maps are visual representations of thoughts, concepts, and ideas. It provides a visual representation of relationships and processes. In business, mind maps can be used to enhance communication, brainstorming, and collaboration (Guffey & Loewy, 2016). It enables individuals to increase their productivity in business meetings by visualizing concepts and connections.
Advantages and Disadvantages of two economic systems
Economic systems are widely categorized as planned and free- market economy. The planned economic system reduces economic inequalities between the rich and the poor by distributing resources equally. The system ensures that all citizens have the ability to purchase and consume products. The plight of unemployment is also reduced significantly since the government allocated resources to areas that provide more employment opportunities (Ward & Begg, 2016). The disadvantage of a planned economic system is lack of variety. Consumers have few alternatives of products to select from. Companies might also become inefficient because they lack the profit motive.
The free-market system promotes innovation among citizens. Citizens can create new innovative products and services provided launch them in the market. Competition among firms also influences companies to differentiate their products so as to beat their competitors (Ward & Begg, 2016). The citizens also have access to a variety of products to select from. However, the disadvantage of a free-market economy is poor wealth distribution that widens the economic gap between the poor and the rich.
Fine, B. (2016). Microeconomics. Chicago: University of Chicago Press .
Guffey, M., & Loewy, D. (2016). Essentials of business communication. Boston: Centage Learning .
Miller, R. L., & Benjamin, D. K. (2017). Economics of macro issues. London: Pearson Publishers.
Phaneuf, D. J., & Requate, T. (2016). A course in environmental economics: theory, policy, and practice. Cambridge: Cambridge University Press.
Tuker , J. (2018, April 18). China's Communism That is Not. Retrieved September 02, 2018, from AIER: https://www.aier.org/article/chinas-communism-not
ushistory.org. (2018). Comparing Economic Systems. Retrieved September 2, 2018, from ushistory.org: https://www.ushistory.org/gov/13b.asp
Ward, D., & Begg, D. (2016). Economics for business. . New York: McGraw-Hill