Business Knowledge

What is an economic system? – Definition and meaning

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The economic system is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people. Behind this definition are two key ideas in economics: that goods are scarce and that society must use its resources efficiently.

Economics refers to all institutions and activities involved in the production and distribution of goods or the provision of services. The term economy thus represents the totality of all institutions and actions that serve to meet human needs.

Business defines the completeness of all facilities, such as businesses, private and public households, as well as the necessary processes associated with the production and consumption of goods and services.

Applied to the individual, economy serves the material preservation and safeguarding of the life of the individual. In terms of the economy, the economy serves to secure the lives of a large number of people. The task and goal of the economy is the continuous fulfillment of the human need for goods and services. Objectively, the economy is the epitome of all efforts and measures that serve to overcome the tension between needs and needs.

Economic institutions include both private and public budgets. The economic activities include production, consumption, circulation, and distribution. The definition of economy distinguishes between world, national and business level.

Economic System

Economic orders are political as well as legal forms for the requirements of the economic acts within an economic area. Within the free market economy, both production and consumption are controlled by the market. The participation of the state is limited to the creation of a legal system. The characteristics of a free market economy are the contract, trade, consumer and occupational freedom as well as private property. Only the factors supply and demand regulate the price of a product. This creates free, unrestricted competition. Use all the free market economy advantages. Ward off the disadvantages such as destructive competition, anti-social conditions, and economic power overhang. Prosperity and social security are the objectives of the free market economy. Economic actors are companies, consumers and also public institutions.

Economy satisfies the needs of the people which is not possible in the division of labor society. For example, the economy must meet the needs for food, clothing and other essential goods through their production and provision. The individual must be able to meet his needs by the possibility of acquiring these goods.

Economic systems that move the world

In the twentieth century, three economies competed for human favor: economic liberalism, state central planning, and Keynesianism. Even though neo-liberalism prevailed at the beginning of this century, this does not necessarily mean the end of the changes.

At the beginning of the twenty-first century, after the worldwide enforcement of the supply-economy described by its opponents as neo-liberalism, it is hard to imagine that in the previous century three economies competed for human favor: economic liberalism, state central planning economy, and Keynesianism.

The diversity cause was not the idea of trying different systems and then selecting the best way of doing business. Rather, the cause was the disappointment of the prevailing economic system, which could not keep what it had promised.

In practice, the economy is to illustrate between essential needs and unnecessary needs for life. In an economic system, money flows in an activity of the satisfaction of the need. Thus, economics includes only the activities that serve to maximize personal profit.

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