What should be produced economics
The three major ways they can be organized are as a market economy, a command economy, or a mixed economy. In a market economy , consumers and businesses decide what they want to produce and purchase in the marketplace. They make these decisions by? Producers decide what to produce given the demand they see in the marketplace in terms of their sales and the prices they get for their goods and services.
In a pure market economy, also known as a laissez-faire economy from the French? The government does not direct, and may even lack the power to direct, the private sector to produce certain goods and services.
In a market economy , the private-sector businesses and consumers decide what they will produce and purchase, with little government intervention. A laissez-faire economy is one in which the government plays a very limited role. In a command economy , also known as a planned economy, the government largely determines what is produced and in what amounts.
In a mixed economy both market forces and government decisions determine which goods and services are produced and how they are distributed. Welfare refers to government efforts to provide for people's basic needs.
Also known as public assistance, because it comes from the public sector, these efforts take the form of government sponsored work projects and, more commonly, payments made by the government to support basic needs of those who cannot afford them.
The federal food stamp and Medicare programs are both forms of welfare. It directs producers to make and deliver goods and services in specified amounts. In practice, command economies are associated with socialism and communism, two closely related forms of government.
Socialism and communism are characterized by collective ownership of the means of production and central planning functions that try to produce what people want and need, in the quantities and at the time required.
The underlying philosophy of socialism is? How do you afford the things you buy? You work for pay. Or if you do not, someone else does on your behalf. Yet most of us never have enough to buy all the things we want. This is because of scarcity. So how do we solve it? Visit this website to read about how the United States is dealing with scarcity in resources. Every society, at every level, must make choices about how to use its resources.
Families must decide whether to spend their money on a new car or a fancy vacation. Towns must choose whether to put more of the budget into police and fire protection or into the school system. Nations must decide whether to devote more funds to national defense or to protecting the environment. So why do we not each just produce all of the things we consume? The simple answer is most of us do not know how, but that is not the main reason. When you study economics, you will discover that the obvious choice is not always the right answer—or at least the complete answer.
Studying economics teaches you to think in a different of way. Think back to pioneer days, when individuals knew how to do so much more than we do today, from building their homes, to growing their crops, to hunting for food, to repairing their equipment.
Most of us do not know how to do all—or any—of those things. It is not because we could not learn. Rather, we do not have to. The reason why is something called the division and specialization of labor , a production innovation first put forth by Adam Smith , Figure 2 , in his book, The Wealth of Nations. The formal study of economics began when Adam Smith — published his famous book The Wealth of Nations in Many authors had written on economics in the centuries before Smith, but he was the first to address the subject in a comprehensive way.
In the first chapter, Smith introduces the division of labor , which means that the way a good or service is produced is divided into a number of tasks that are performed by different workers, instead of all the tasks being done by the same person.
To illustrate the division of labor, Smith counted how many tasks went into making a pin: drawing out a piece of wire, cutting it to the right length, straightening it, putting a head on one end and a point on the other, and packaging pins for sale, to name just a few.
Smith counted 18 distinct tasks that were often done by different people—all for a pin, believe it or not! Modern businesses divide tasks as well. Even a relatively simple business like a restaurant divides up the task of serving meals into a range of jobs like top chef, sous chefs, less-skilled kitchen help, servers to wait on the tables, a greeter at the door, janitors to clean up, and a business manager to handle paychecks and bills—not to mention the economic connections a restaurant has with suppliers of food, furniture, kitchen equipment, and the building where it is located.
A complex business like a large manufacturing factory, such as the shoe factory shown in Figure 3 , or a hospital can have hundreds of job classifications. When the tasks involved with producing a good or service are divided and subdivided, workers and businesses can produce a greater quantity of output.
In his observations of pin factories, Smith observed that one worker alone might make 20 pins in a day, but that a small business of 10 workers some of whom would need to do two or three of the 18 tasks involved with pin-making , could make 48, pins in a day.
How can a group of workers, each specializing in certain tasks, produce so much more than the same number of workers who try to produce the entire good or service by themselves? Smith offered three reasons. First, specialization in a particular small job allows workers to focus on the parts of the production process where they have an advantage. In later chapters, we will develop this idea by discussing comparative advantage.
People have different skills, talents, and interests, so they will be better at some jobs than at others.
The particular advantages may be based on educational choices, which are in turn shaped by interests and talents. Only those with medical degrees qualify to become doctors, for instance. For some goods, specialization will be affected by geography—it is easier to be a wheat farmer in North Dakota than in Florida, but easier to run a tourist hotel in Florida than in North Dakota.
If you live in or near a big city, it is easier to attract enough customers to operate a successful dry cleaning business or movie theater than if you live in a sparsely populated rural area. Whatever the reason, if people specialize in the production of what they do best, they will be more productive than if they produce a combination of things, some of which they are good at and some of which they are not. Second, workers who specialize in certain tasks often learn to produce more quickly and with higher quality.
A pure planned economy has one person or group who controls what is produced; all businesses work together to produce goods and services that are planned and distributed by the government. These economies are also called command economies because everyone must follow specific guidelines set up by the controlling authority. Most assets are owned by the state. Planned economies have several advantages.
Ideally, there is no unemployment and needs never go unfulfilled. Because the government knows how much food, medicine, and other goods is needed, it can produce enough for all. But achieving these outcomes depends on the group that organizes production and distribution to accurately identify what the consumers will need, determine what it would take to meet those goals, and anticipate all possible situations. This means there are a lot of opportunities to make a mistake.
Realistically, these systems tend to suffer from large inefficiencies and are overall not as successful as other types of economic systems. Lenin : The Soviet Union, as established by V. Lenin, is an example of a country that tried to establish a pure centrally planned economy.
A pure market economy, or capitalist system, is one perfectly free from external control. Individuals may decide what to produce, who to work for, and how to get the things they need. They are compensated with material goods for their work, and most assets are privately owned.
This type of economy, though it may be chaotic at times, allows people to change along with the shifting market conditions to maximize their profits. Although they avoid many of the inadequacies of planned economies, market economies are not free of their own problems and downfalls. Perhaps the greatest problem is that business firms may refuse to produce goods that unprofitable for them. For instance, in there was a shortage of tetanus vaccine in the United States.
Because it was expensive to make, most companies were unwilling to start production themselves, leaving only one firm struggling to keep up with demand. In a planned economy, this shortage would not happen because the government would boost production of the vaccine if it were needed. Because there is no regulation to ensure equality and fairness, market economies may be burdened with unemployment and even those with jobs can never be certain that they will make enough to provide for all of their needs.
Despite these and other problems, market economies come with many advantages, chief among which is speed. Because they do not need to wait for word from the government before changing their output, companies under market economies can quickly keep up with fluctuations in the economy, tending to be more efficient than regulated markets.
Also, individuals have more freedom and opportunities to do the jobs they want and to profit by them. A mixed economy is a system that embraces elements of centrally planned and free market systems. While there is no single definition of a mixed economy, it generally involves a degree of economic freedom mixed with government regulation of markets.
Most modern economies are mixed, including the United States and Cuba. Countries hope that by embracing elements of both systems they can gain the benefits of both while minimizing the systems disadvantages.
In general, most of the means of production in a mixed economy are privately owned. There are some exceptions to this general rule, such as some hospitals and businesses. The mostly private ownership of all means of production allows the market to quickly respond to changing circumstances and economic factors. As a result, the market is generally the dominant form of economic coordination. However, to mitigate the negative influence that a pure market economy has on fairness and distribution, the government strongly influences the economy through direct intervention in a mixed economy.
Different ways a government directly intervenes in an economy include:. Most government intervention in mixed economy is limited to minimizing the negative consequences of economic events, such as unemployment in recessions, to promote social welfare. While mixed economies vary based on their degree of government intervention, some elements are consistent.
Generally, individuals in mixed economies are able to:. However, the government in mixed economies generally subsidizes public goods, such as roads and libraries, and provide welfare services such as social security. These governments also regulate labor and protect intellectual property.
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