Essay on Functions Of The Economic System

1261 Words Mar 17th, 2015 6 Pages
Four functions of the economic system

The four functions of an economic system are what to produce, how much to produce, how to produce and for whom to distribute to. An economy can either be free market or planned, both of which seek to satisfy maximum wants with minimum resources.

Market
Planned
What to produce
Consumer Sovereignty
Government
How much to produce
Consumer Demand
Government
How to produce
Firms
Government
For whom to distribute
Dedicate more resources to higher income earners
Government

Great table Adam - a little more detail - define consumer sovereignty, what is the relationship between resources and income, what is the theory behind government ownership of resources in planned economies?
Market Economies

Includes Australia, New Zealand, Japan, United Kingdom, Germany, France, Canada, United States.

In market economies what to produce is determined by the consumer. It is no use for producers to sell products that nobody is interested in paying for, because they won’t make any money.
How much to produce is determined by consumer demand. If a product is in high demand producers will satisfy it if it provides a decent return.
Producers will seek to gain the maximum profit for the lowest possible cost. Therefore producers will seek out the most cost efficient means for production of there good or service.
For whom to distribute is based on who is willing to pay for a particular item. Producers will dedicate more resources to higher income earners…

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