Market Economy Command Economy And Mixed Economy Economics Essay

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Multiplier: multiplier is the factor of proportionality that calculates the constituents of the endogenous variable change with response to the change in exogenous variable. Endogenous variable can be explained as the co-relation between the parameters and the error term. It is basically that is inside the system. Meanwhile exogenous variable means the change that comes outside from the system and that is not explained by the system inside the model.

Model of circular flow.


Fig: model of circular flow

Model of circular flow generally called as "model of income" in economics can be explained as the model that explains the circulation of the income between the manufacturer and the consumers. The interdependent entities of the manufacturer and the consumers provide each others with the factors in order to facilitate the flow of income between them. The manufacturer provides the consumer with the goods and services in return with the consumer's expenditure. As the human desires are unlimited and so, the process between the consumption and production of the goods remains continuous and the as well as the demanding process. So this process has neither a start nor and end so it is called as a circular flow model. The circular flow model basically involves two basic assumptions, which are:

The amount of money or the payment that the consumer spends is equal to the same amount that the manufacturer or the seller receives.

The services provided and the goods manufacture flows in a unidirectional whereas the payment flows in the reverse direction so that the flow remains circular.

Wages and labour:

Wages is the payment that a employee receives from the employer depending upon the service that the employee performs on the task assigned to them. It is generally calculated as a fixed amount or based on the hours that the employee works in the company or the quantity of the work that need to be done.

Labour is the human effort spent by and individual (employee) in an organisation for the production of goods or services for the overall payment of their wages. It can generally be explained as the process of hiring people to perform task who in return gets paid for.

Wage labour is a socioeconomic relationship between the employer and the employee where the employer pays the labour for the task performed based on the contract between them. Here the basic term is that the wages to the employee is paid in exchange to the work which becomes the undifferentiated property of the employer. The most and significant forms of wage labour is ordinary direct but the other different variety of forms also includes based on which the labour are interchanged such as employment status, civil status, method of payment and the method of hiring the employees.

Utility, Scarcity and Opportunity Cost:

In economics utility refers to the total satisfaction received by the consumers from the goods and services they receive. Here both the goods or services provider party meanwhile the receiver party should accept certain criteria to maintain the given level if satisfaction. As it cannot be measured but depending on the demand of goods or services it can be measurable on some extend.

Scarcity refers to the lack of any goods or services due to the demanding nature of the consumers. When the goods or services are limited but the needs are unlimited there is a chance of scare. Because of this factor many economic decision are need to be made to allocate resource efficiently and provide to the consumers. So there should always be a consistent flow between the production and the supply.

In general term opportunity cost refers to the alternative that is forgone or in was done in past to perform a certain action. Means the benefits that you could have received by choosing to do and alternative task. It is a kind of opportunity you had in past by which you could have earned instead of spending that money on that particular task performed. Gaining education can also be an example where you could have earned money by working instead of gaining education by paying money in past.

Factors of production:

The factors or the inputs that are used for the production of goods or services in the attempt of generating economic profit. These factors includes the production land, capital invested, the labour used while production as well as entrepreneurship. All these factors are interrelated to each other as they have no value of them in individual. Without one of the factor the other has no meaning of existence.

Land: land refers to all the natural resources that are used in manufacturing or production. It may include the natural resources where the essential raw material are produced as well as the use of them. Timber, gold, fuel may be classified in this category.

Labour: labour is the work that is performed by the labours or the employees at any levels which overall motto is to produce quality product and services. Here all the persons involved in the manufacturing process includes in this category except the entrepreneur.

Capital: the total expenditure that is incurred in either purchasing the new tools or machinery that are used in producing goods or services or the amount of money that is used in starting the business is called as capital. This may be in cash or in term of goods or property.

Entrepreneur: he individual who takes or generates idea to start an business with a motto of providing goods and services plus with an attempt of making an economic profit is called as entrepreneur. He is the person who assembles all the others factors of production and tries to satisfy consumers with an aim to get maximum profit. He is responsible for the profit or loss of the company and takes on all the risks and rewards on the business.

Types of economy:

Economy is defined as the planning made by the country for its services provided, goods produced for the consumers and the exact way in which the economic plans are carried out. It includes the allocation of inputs, distribution of economic outputs; land availability, household expenditures in consumption of goods and services and government policies. There are mainly three economic systems:

Market economy: market economy also called as capitalistic economy is defined as the economy in which the consumers decides which goods and services they need and which business provides those. Most business in marked economy is sole ownership or privately owned. The government has a least control over this economic system. The only role of government is to make sure that the market is stable enough to carry out its economic activities in a proper way. Due to the less government involvement the consumers are free where and how to spend their money. So in real world there is a least existence of pure form of market economies.

Command economy: command economy also called as planned economy is defined as the economy where the government owns most of the businesses. The government allocated the quantity to be produced and where and how those products should be produced. Here all the power is in the governments hand in making major decisions regarding the production and distribution of goods and services. Overall this economy consists of state-owned enterprise which has all the empowerment on the government hand. In this economy system there is a lack of flexibility that is present in a market economy and because of which there is a slower change in consumer needs ad fluctuating patters of supply and demand.

Mixed economy: it is the economic system in which both the government and private sector directs the company, reflecting both the characteristics of the market economy and command economy. Here both the sectors play an important role in effective decision making of the country. He in case of mixed economy there is flexibility in some areas and the government also has control on the others so it includes both capitalist and socialist economic policies and frequent arises in society which needs to balance a wide range of political and economical views.