Page 246 - Encyclopedia of Business and Finance

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Economics

The economies of China, the former Soviet Union, role of government is to ensure that the ownership of the
and the former East Germany are examples of communist resources used in production are privately held. Socialist
economies. economies are primarily command economies where most
non-human resources are owned by the state but human
capital is owned by the individual. Communist economies
MIXED ECONOMIC SYSTEMS
are also command economies but all resources, both
In practice, most economies blend some elements of both human and non-human, are owned by the state.
market and command economies in answering the three
fundamental economic questions: In practice, all economies are actually mixed
economies, incorporating some facets of both market and
• What and how much will be produced? command economies. The relative importance of the par-
ticular economic system in the country is the determinant
• How will it be produced?
of the type of economic system that it is generally consid-
• For whom will it be produced?
ered to be.
Furthermore, within any economy, the degree of the SEE ALSO Economics
mix will vary.
The economy of the United States is generally con-
Denise Woodbury
sidered to be a free market or capitalist economic system.
However, even in the United States the government has
determined a minimum wage, has set rules and regula-
tions for environmental protection, has provided price ECONOMICS
supports for agricultural products, restricts the imports of
items that might compete with local production, restricts Economics is often described as a body of knowledge or
the exports of sensitive output, provides for public goods study that discusses how a society tries to solve the human
such as a park system, and provides health and retirement problems of unlimited wants and scarce resources.
services through Medicaid and Medicare. All of these Because economics is associated with human behavior, the
detract from the essential nature of a capitalist economy. study of economics is classified as a social science. Because
However, most decisions continue to be left to free mar- economics deals with human problems, it cannot be an
kets, leaving the United States as a mixed economy that exact science and one can easily find differing views and
leans heavily toward the capitalist economic system. descriptions of economics. In this discussion, the focus is
an overview of the elements that constitute the study of
In contrast, the economy of the former Soviet Union
economics, that is, wants, needs, scarcity, resources, goods
is generally considered to be communist. However, the
and services, economic choice, and the laws of supply and
strict controls of the central planning unit of the country
tended to be more intensely focused on heavy industry, demand.
including the defense and aerospace industries, than on Every person is involved with making economic deci-
agricultural industries. Farmers often had significant free- sions every day of his or her life. This occurs when one
dom to produce and sell (or barter) what they wished. decides whether to cook a meal at home or go to a restau-
rant to eat, or when one decides between purchasing a
new luxury car or a low-priced pickup truck. People make
SUMMARY
economic decisions when they decide whether to rent or
Countries have scarce resources. The economic systems of
purchase housing or where they should attend college.
countries are designed to allocate those resources, through
a production system, to provide output for their citizens.
WANTS, NEEDS, AND SCARCITY
The fundamental questions that these systems answer are:
As a society, and in economic terms, people have unlim-
• What and how much will be produced? ited wants; however, resources are scarce. Do not confuse
• How will it be produced? wants and needs. Individuals often want what they do not
need. In the automobile example used above, someone
• For whom will it be produced?
might want to drive a large luxury car, but a small pickup
Market economies leave the answers to these ques- truck may be more suited to the purchaser’s needs if he or
tions to the determination of the forces of supply and she must have a vehicle for hauling furniture. Economic
demand while command economies use a central plan- decisions must be made.
ning agency to direct the activities of the economy. Pure A resource is scarce when there is not enough of it to
capitalist economies are market economies in which the satisfy human wants. And human wants are endless.

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 223