Some Important Topics from Samuelsson & Nordhaus Chapter 01, Economics. P2
The three problems of economic organization
Every human society—whether it is an advanced industrial
nation, a centrally planned economy, or an isolated tribal nation—must confront
and resolve three fundamental economic problems. Every society must have a way
of determining what commodities are produced, how these goods are made, and for
whom they are produced. Indeed, these three fundamental questions of economic
organization— what, how, and for whom — are as crucial today as they were at
the dawn of human civilization.
Q1, What need to be produced: What needs to be
produced depends on a country's economic condition And demand. for example, a poor country mainly needs to
fulfill her basic needs like food cloth medicine. So, the country invests
her limited resources on these. On the other hand, a rich and developed country
Has much more resources than a poor country. So she can invest in both
necessary goods and luxurious products.
Q2, How are goods produced: A society must determine who will do the
production, with what resources, and what production techniques they will use.
This
also depends on the society's condition. Like a country that has Enough forest
will use trees to make houses. Riverrun country will use her resources to make
different kinds of vessels.
Q3, For whom the product will be make: This is the
final question of the three basic economic questions. We discussed what and how
a product can be produced but these two questions are fully dependent on for
whom the product is going to be produced. It is evident that poor countries
need their basic needs more than luxury.
On the contrary, citizens of developed countries spend way too much
money on luxurious goods rather than necessary products. Societies condition
automatically decides how and what is produced by its resources
Market Command and Mixed economy
Market economy: A market economy is one in which
individuals and private firms make the major decisions about production and
consumption. Here the Government doesn't
take the major decisions. Market automatically fixes prices of products and
services.
Command economy:
In a command economy the government owns and decides major decisions
about how the country's economy will run. For example, in North Korea the
government owns every property, they decide about every single thing that
people are going to consume.
mixed
economy: mixed economy is an economic
system where market and command economy both can be found. In a mixed economy,
governments also have a big portion of investment in the market. Reason for this
is to control the market When it is
going too high or too low, or any Syndicate is trying to Dominate the market
which can affect normal price and citizens expenditure. For example, in Bangladesh
a company or individual can easily Do
any business they like. But to tackle
the over price Government has investment in major industries.
Oil, power, natural gas, sugar, jute, Railway, ports
Are owned by the government so that citizens
would never face oven price in these.
INPUTS AND OUTPUTS In Economy
To answer these three questions, every society must make
choices about the economy’s inputs and out[1]puts.
Inputs are commodities or services that are used to produce goods and services.
An economy uses its existing technology to combine inputs to produce outputs.
Outputs are the various useful goods or services that result from the
production process and are either consumed or employed in further production.
Consider the “production” of pizza. We say that the eggs, flour, heat, pizza
oven, and chef’s skilled labor are the inputs. The tasty pizza is the output.
In education, the inputs are the time of the faculty and students, the
laboratories and classrooms, the text[1]books, and so on,
while the outputs are informed, productive, and well-paid citizens. Another
term for inputs is factors of production. These can be classified into three
broad categories: land, labor, and capital.
● Land —or, more generally, natural resources— represents
the gift of nature to our societies. It consists of the land used for farming
or for under[1]pinning houses,
factories, and roads; the energy resources that fuel our cars and heat our
homes; and the nonenergy resources like copper and iron ore and sand. In
today’s congested world, we must broaden the scope of natural resources to
include our environmental resources, such as clean air and drinkable water.
● Labor consists of the human time spent in
production—working in automobile factories, writing software, teaching school,
or baking pizzas. Thousands of occupations and tasks, at all skill levels, are
performed by labor. It is at once the most familiar and the most crucial input
for an advanced industrial economy.
● Capital resources form the durable goods of an economy,
produced in order to produce yet other goods. Capital goods include machines,
roads, computers, software, trucks, steel mills, automobiles, washing machines,
and buildings. As we will see later, the accumulation of specialized capital
goods is essential to the task of economic development.
Click Here for part 01
0 Comments