Key Concepts of Economic Systems and Institutions

Command System (Communism)

An economic system where the government controls all aspects of economic life, including ownership of productive assets, central planning, and distribution of goods and services.

Capitalistic System (Pure Market Economy)

Private ownership of resources, free markets with minimal government intervention, and incentives for profit, which lead to innovation and efficiency.

Mixed System

It combines private ownership and free markets with government control of certain sectors, balancing economic freedom with welfare and equity goals.

Traditional Economic System

A system based on tradition and customs, often found in agrarian or under-developed societies, with limited technological progress.

Cultural Institutions

Family structures, religion, arts, social media, and education.

Economic Institutions

These include markets for products and resources, financial systems, households, firms, and the infrastructure supporting commerce.

Legal Institutions

Property rights, anti-trust laws, business contracts, and court systems.

Political Institutions

They create and enforce laws, manage governance through branches of government, and influence economic policy and social norms.

Consumer Sovereignty

The concept that consumers have the power to dictate production through their purchasing choices, guiding resources toward the most valued goods and services.

Producer Surplus

The difference between what producers are willing to accept and what they actually receive, reflecting profit in competitive markets.

Equity-Efficiency Tradeoff

The balance between fair distribution of resources () and productive use of resources (), varying by economic system.

Trade Surplus

It indicates that exports exceed imports, which can boost the economy but may lead to higher living costs if unchecked.

Circular Flow Model

A model illustrating the flow of goods, services, and money between households, businesses, and the government in a market economy.

Resource Markets

Markets where factors of production (labor, land, capital) are bought and sold.

Product (Output) Markets

Markets where final goods and services are sold to consumers at mutually agreed prices.

Financial Capital Market

A market where financial resources are provided by savers and used by borrowers for investment in businesses or public projects.