• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

The Function of an economy.

Extracts from this document...

Introduction

The Function of an economy: An economy is a system, which attempts to solve the basic economic problem. In a national economy the resources in a country are changed by business activity into goods and services, which are bought by individuals. In a household economy the family budget is spent on a range of goods and services. Local and International economies also act in the same way, but at different levels. The function of an economy is to allocate scarce resources amongst unlimited wants. The basic economic problem is often broken down into three questions: * What should be produced? * How should it be produced? * For whom should it be produced? What should be produced? In developed economies the number of goods and services produced from resources is immense. The economic system must decide which resources will be used to produce which products. For example, what proportion of the resources should be used to produce food, cars, housing, cigarettes, cosmetics, computers, etc.? Should resources be used for military purposes? Should resources be used to generate wealth for the future? ...read more.

Middle

iii. Higher rate of capital formation: people can save a part of their income so that it can be invested to earn more income and leave larger properties for their heirs. The rate of capital formation increases when savings are invested. This accelerates economic growth. iv. Economic Development and prosperity: It is argued that free market will lead to larger, better-quality outputs at lower unit costs. Capitalism offers great incentive for saving and large opportunities for investment. It encourages innovation and technological progress and the optimum use of resources. v. Optimum utilization of resources: Every producer and entrepreneur tries to use the resources at his disposal in the most economical manner in order to maximize profits. Otherwise, businesses may suffer higher costs and losses or even bankruptcy or their miscalculations. vi. Just system: a man who takes the initiative and shows extra ordinary resourcefulness makes the highest profits. vii. Democratic: In a capitalist economy, individuals have greater freedom to make their own supply and demand decisions. Consumers buy what they like and not what is supplied to them. ...read more.

Conclusion

packets, if they feel their jobs doesn't fulfill for factors such as self-respect, pride in the job and the ability to work at one's own pace. v. Many decisions are made by consumers with an imperfect knowledge of the market. Producers frequently change the details of their products including price, shape, size and packaging. This makes it very difficult for consumers to weigh up alternative purchases, and many decisions are made by impressions rather than hard evidence. vi. Many resources can be wasted due to a high failure rate of new businesses. A lot of time and money is spent on setting up a new business. When it closes down after a few months, many of its resources may end up as little as scrap. vii. Merit goods such as education and health may not be available to all, which can be harmful to the economy and society. viii. Monopolies may occur which are often bad for consumers. Big monopolies can control the market, squeeze out competition and set prices of their own liking. Private producers will ignore the bad effects of external costs of their activities, such as pollution, if they are allowed complete freedom. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Causes of the Great Depression

    The US economy had thus been showing some signs of distress for months before October 1929. Commodity prices had been falling worldwide since 1926, reducing the capacity of exporters in the peripheral, undeveloped economies of Latin America, Asia, and Africa to buy products from the core industrial countries, such as the United States and the United Kingdom.

  2. This report will establish the opportunities and threats presented to Sony by the EU ...

    Sony has a limit in compete with this fluctuating exchange rate because if we don't join the Euro businesses like Sony can't predict their future. If the pound is high then Sony have less customers because they would prefer to go to other member countries because it is cheaper and

  1. Liberalization: where it has lead us and where it is headed

    I think so. There is only one thing that could stop it: the Indian government. But I don't believe it will. I believe so for a one reason: the secret is out. Hundreds of millions of ordinary Indians now watch television, both Indian and foreign, which they did not do

  2. Scarcity and Unlimited Wants.

    * Improved health care through medical discoveries and introduction of the National Health Service. Migration Migration happens when people either permanently leave a country (emigration) or enter it (immigration). Net migration is the difference between the number of people emigrating and immigrating. People usually want to leave countries (voluntary emigration)

  1. Chinese economy sets for soft landing in 2005.

    Garten compared China to "a ship moving into much rougher waters. My takeaway [from this session] is to beware of irrational exuberance when it comes to China." Great Companies, Great Leaders: The Challenge for China and the World 13.09.2004 China Business Summit 2004 As Chinese companies go global and inevitably

  2. The Quest for Optimal Asset Allocation Strategies in Integrating Europe.

    Then it will explain the rationale of international diversification strategies by discussing the mean-variance optimisation theory of Markowitz. It will then continue to review those theories and literature related to the topic of international diversification benefits within the EMU, including: factors affecting cross-country correlations, the question of financial integration within

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work