ECO: Topic 24.1 - Economics systems

Economic organization

Refers to the structure and functioning of economic systems, including the way goods and services are produced, distributed and consumed

Includes the institutions, laws, regulations and customs that govern economic activities as well as behavior and decisions of individuals and firms

Types of economic organizations

Market economy

Command economy

Mixed economy

Common problems of economic organizations

Market failures

Inequality and poverty

Coordination problems

Market failures

Occur when the market system fails to allocate resources efficiently

Happens for several reasons, such as incomplete information, externalities and market power

Failures can lead to inefficient resource allocation, reduced economic welfare and other negative consequences

Market failures example

Company is allowed to pollute the environment without paying for damages = creates a negative externality that can harm people and environment – market system fails to reflect the true costs of production and consumption, leading to inefficient resource allocation

Inequality and poverty

Economic organization can lead to inequality and poverty, particularly if the distribution of income and wealth is highly skewed

Inequality – lead to reduced social mobility, lower economic growth,..

Inequality and poverty

Small group of individuals/companies hold significant amount of wealth and power = might be able to influence economic policies in their favor, leading to further concentration of wealth and power

This can result in a society where large portion of population lives in poverty

Inequality and poverty example

Small group of individuals/companies hold significant amount of wealth and power = might be able to influence economic policies in their favor, leading to further concentration of wealth and power

This can result in a society where large portion of population lives in poverty

Coordination problems

Particularly in complex systems, where multiple actors must coordinate their actions to achieve a common goal

Coordination problems can lead to inefficiency, reduced productivity and other negative consequences

Coordination problems example

Global supply chain – different firms and countries must coordinate their production and logistics to ensure that goods are delivered to the right places at the right time

If they are coordination failures, such as delays in shipping or disruptions in the supply chain, this can lead to inefficiencies and reduced economic welfare

 

Traditional economy

Economic system in which economic activities are organized around traditional cultural practices and beliefs

Principle of function of traditional economy

Production is focused on __meeting the basic needs of the community__, rather than on generating profit or economic growth

Economic activities are centered on __subsistence agriculture, hunting__, fishing, other __traditional practices__

 

Traditional economies __rely on barter and exchange__ as the primary means of trade

Goods and services are __exchanged directly between individuals__ and communities, often without the use of money

 

Economic decisions are __guided by customs and traditions__, rather than by market forces or government intervention

__Social norms and values__ play a key role in shaping economic behavior and outcomes

 

Economic decisions are made by __the community as a whole__, rather than by individuals or government authorities

Decisions are based on the __needs and priorities of the community__, rather than on profit or economic efficiency

 

Traditional economies tend to have __limited technology__ and rely on __traditional tools__ and methods of production

This can limit productivity and output but also helps to preserve traditional cultural practices

 

Oeconomicus

Concept of exchange value = refers to value of goods and services in terms of what they can be exchanged for in the market place

exchange value is an important consideration in household management and agriculture, as it allows individuals to maximize their resources and generate wealth

individuals should focus on producing goods that have a high exchange value, as these are more likely to generate a profit in the marketplace