Chapter 2.1, Problem 1R

To determine

To Discuss: The importance of Economy System, Traditional Economy, Command Economy, Market Economy, Market, Mixed Economy and Circular flow of input and output.

Explanation of Solution

Traditional economy occurs generally from rural areas, where economic activities mostly depend on farming or other traditional income-generating activities. Traditional economies focus mainly on agricultural activities and these economies tend to adopt farming; they trade the surplus crop and start evolving under traditional economies.

In the Command economy system, most of the part is controlled by a central authority- the government, which controls a significant portion of economic activities. In this, if the economy enjoys access to many resources, and then the government comes in exercises control over resources. Command economy is also known as a planned economy. Under the planned economy, it was considered to help the state and to mobilize resources to realize the prioritized objective in a well-defined time frame.

Market economy is considered to be the first formal economic system emerging out of the traditional economy. Under a market economy, it is the self-interest that motivates individuals/firms to do economic activities out of which society gets goods and services supplied, i.e., the products society gets are unintended social benefits of self-interested actions.

Mixed economy shares the merit of both market and command economies. In certain areas of production, producers are free to make their decisions to maximize their profits. Further, in certain other areas, decisions are taken entirely on the basis of social considerations. Under mixed economies state and private sector both have economic roles. Private sectors to play their role where the motive of profit can work properly.

Circular flow of input and output is a process whereby, the national flow of income and expenditure goes through in a circular manner continuously. There are various elements of inflow and output, which are as follows:

• Import
• Export
• Saving
• Investment
• Taxations

Economics Concept Introduction

Introduction:

The economic system refers to a system where societies and governments organize/collect and distribute the resources available for better production and growth in the economy. Factors of production here include land, labor, capital, and entrepreneurship. There are four economic systems which are: Traditional economy, Command economy, Market economy, and Mixed economy.

In the traditional sense, a market is a place where buyers and sellers meet each other to put business transactions in effect. But in today’s modern sense, it is not necessary that the market for a commodity should always be located on a particular street or building

In an economy, income flows from one end to another whenever a transaction is held. Whenever a customer spends, it generates new income for some other and generates new spending and further new income.