The Concept Of Economy Scarcity Economics Essay

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The term economic tends to be used in a variety of ways and context to describe certain aspects of human behavior, ranging from activities producing, distributing and consuming, to be careful in the use of money and food. The economist idea of scarcity centers-around the relationship between society's needs and wants and resources available to satisfy them. Needs and wants tend to be unlimited, the resources which can be used to meet those needs and wants are finite and accordingly no society at any time has the capacity to provide for all its actual or potential requirements. One important difference is between those economies which are centrally planned and those which operate predominantly through market forces, with prices forming the integrating mechanism.

The centrally planned economy

In this economic system - most of the key decisions on production are taken by central planning authority, normally the state and its agencies, under this arrangement the state typically:

Owns and/or controls the main economic resources

Establishes priorities in the use of those resources.

Sets output targets for businesses which are largely understate ownership and/or control

Directs resources in an effort to achieve these predetermined targets; and

Seeks to co-ordinate production in such a way as to ensure consistency between output and input demands.

The fact that an economy is centrally planned does not necessarily imply that all economic decisions are taken at central level; Even in the most centralized of economies, state planning does not normally extend to telling individuals what they must buy in shops or how to use their labor. An element of state direction at times may exist. In such an environment, the traditional entrepreneurial skills of efficient resource management, price setting and risk taking have little, if any, scope for development and managers behave essentially as technicians and bureaucrats, administering their activities are conditioned by social and political considerations rather than by the needs of the market- although some market activity normally occurs in planned economies.

The free market economy

The free market (or capitalist) economy stands in direct contrast to the central planned system. Whereas in the latter the state controls most economic decisions, the former the key economic agencies are private individuals and firms, and these interact in "free markets" through a system of prices to determine the allocation of resources. The key features of this type of economy system are as follows:

Firms, also in private ownership, are equally able to make decisions on production, free from state interference.




Free- market





Decisions on resource allocation are the result of a decentralized system of markets and prices, in which the decisions of millions of consumers and hundreds of thousands of firms are automatically co-ordinate

The three problems of what to produce, how to produce and how to distribute are solved by market forces. Individuals are owners of resources (e.g. Labor) and consumers of products; firms are users of resources and producers of products. What products are produced and how resources are used- depends on consumers, Equally competition between producers seeking to gain or retain consumers is said to guarantee that resources are used efficiently and to ensure that the most appropriate production methods (how to produce) .

The Macro economy

Levels of analysis

Economics is concerned with the study of how society deals with the problem of scarcity and the resultant problems of what to produce, how to produce and how to distribute. Within this broad framework the economist typically distinguishes between two types of analysis:

Microeconomic analysis, which is concerned with the study of economic decisions taking by individuals and firms.

Macroeconomic analysis, which is concerned with interactions in the economy as a whole (with economic aggregates).

Economic growth

Growth is an objective shared by governments and organizations; the aim is usually to achieve steady and sustained levels of the inflationary growth, preferably led by exports. Such growth normally indicated by annual increases in real national income or growth domestic product( where 'real'= allowing for inflation) economy's annual output of goods and services measured in monetary terms compensate for changes in the size of the population, growth rates tend to expressed in terms of real national income per capita( real gdp divides population). The rising living standards normally associated with such growth may however encourage increased consumption of imported goods and services at the expense indigenous producers, to a point where some domestic firms are forced out of business and the economy's manufacturing base becomes significantly reduced (often called deindustrialization).

Political Systems

The Nature of Political Activity

All social situations at certain times require decisions to be made between alternative courses of action. Politics is concerned with those processes which help to determine how conflicts are contained, modified, postponed or settled, and as such can be seen as a universal social activity. Government as a process is concerned with the pursuit and exercise of power- the power t make decisions which affects the lives of substantial numbers of people, be it at local, regional, national or even international level. Government may also refer to the institutions through which power tends to be formally and legitimately exercised, whether they are cabinets, parliaments, council, committees or congresses. Making laws for 'the good of society'. How governments exercise their power and the ideological foundations, on which this is based, helps to indicate the nature of the political system and its likely approaches to the resolution of conflicts.

Authoritarian Political Systems

In an authoritarian political system the disposition is to settle conflicts through the enforcement of rules, regulations and orders by an established authority. This authority may be an individual or a group of individuals who may have assumed political power in a variety of ways. Once in power, the individuals or group will tend to act so as to limit the degree of participation by others in the process of decision making, even to the extent of monopolizing the process altogether and permitting no opposition to occur. Where this is the case, a society is often described as being 'totalitarian'

Democratic Political Systems

In a democratic political system, the assumption is that as far as possible conflicts should be resolved by rational discussion between the various parties concerned, with the final solution being accepted voluntarily by all participants, even if they disagree. Given the scale of complexity of modern states, however, such examples of 'pure' or 'direct' democracy tend to be rare and it is invariably the case that the democratic solution to conflict resolution is achieved 'indirectly' through a system of political representation and responsibility. Under a system, the wishes and views of individuals are said to be represented in established authority that has normally been chosen by the people and which is accountable to them at regular intervals through a variety of mechanism, including regular and free elections.

The Electoral System

The electoral system links the people with government; it is through elections that a country's citizens periodically get to choose who will exercise the power to make decisions which will ultimately shape the lives of individuals. In order to operate in a way which is normally regarded as democratic, country's electoral system would need to exhibit a number of features which suggest that the wishes of individual citizens- as expressed through the ballot box- are reasonably reflected in the choice of government. Such features would include:

A system of regular elections e.g. every four to five years) based on universal adult suffrage;

Basic freedoms of speech, movement, assembly, etc.;

Freedom from coercion and the absence of illegal electoral practices;

A secret ballot;

Free media


Society now expects more of business than it once did. Whereas business was once viewed as primarily the economic institution. The social contract between business and society has been altered insignificant ways. The social contract is partially articulated through the laws or regulations that society has established as the framework within which business must operate, Whereas the social contract once called for business to produce and distribute products and services for profit, it now demands that this economic function be carried out within the context of new constraints safe products, fair advertising, a safe workplace, a clean environment, and equal employment opportunity for all.

As these changes have occurred for various reasons affluence, education, increased awareness generated by the media, the expectations that society and societal segments have placed on business have come to be known as its" social responsibilities." The major problems are that (1) business historically has viewed it as basically antithetical to the free-enterprise system and its profit objective, and (2) society and societal segments have been unable to reach consensus as to what the social responsibilities of business are.

How has business responded to social concerns?

Social responsibility is the recognition of business impact on society and its own employees has become part of the business scene. Firm can no longer act as if they are free of any restraints or accountability for their activities. Some firms have even instituted a type of "social audit", which records a firm's compliance with social legislation and its contributing to the community. Such an audit makes it possible for a company to evaluate its performance and pinpoint areas of inadequacy or underutilization. Upgrading working conditions and attitudes towards consumers, minorities and women, businesses have worked actively to improve employee relations and the physical environment. More and more management is becoming people oriented and more concerned with ecology. These concerns can be translated into a more satisfying work environment, affirmative active programs and pollution control measures, among others.

Legal business organization

The legal environment of a business refers to the relevant laws and regulations under which the business operates. world of business today is subject to an increasing number of laws and regulations, some developed over the years by our judicial system and others imposed by federal, state and municipal legislatures and agencies.  These are the standards that govern relationships among individuals and between people and governments. The legal environment of business includes every rule or regulation that affects the way in which individuals and organizations conduct business. 

The political / legal / regulatory environment

The political / legal/ regulatory environment can be simply described as the regulations that business has to follow in order to make sure the business owners do not get arrested, or have the business fined for noncompliance of some regulation. It is often a direct consequence of the political parties in power, which represents the popular opinion of the citizen of the region. If the citizens are, for e.g. Pro-big business then probably taxation will be modest and there will not be a lot of stringent rules about environmental considerations. If the citizens are concerned about safety rules for example, then there will be a lot of rules and regulations governing things such as transportation safety, which will make it more expensive for some companies that have big shipping costs.

Classification of law

Public and private

-Public-legal relationships between members of the government

Influence behavior

Bring about social change

-Private- legal relationships among members of society

Resolves disputes

Primary common law

Competitive environment

The competitive environment is also own as the market structure, it is the dynamic system in which the business competes. There are two types of competitors, there are direct and indirect. Direct competitors provide products and services similar to others while indirect competitors some businesses also face competition from providers of dissimilar products or services.

Differentiating your product or service in a competitive environment entails developing an element of your business that competitors can't imitate.


Technological innovation also affects the competitive environment,