Lesson 2: Economic System: Economics and Scarcity

Economic system refers to a set of economic institution that dominate a given Economy with the
main objective of solving economic problems, The Four economic systems are categorized as
follows:
1. Traditional Economy
Economics decisions are made with great influence from the past because it copying/ duplicating
the decisions made by previous generations. It is a system whose past experiences, which handed
down form generation to generation, are basis for economic decisions.

2. Command Economy
Economic system that society uses in allocating the scarce resources wherein the factors of
production and distribution are owned and managed by the state because decisions in answering
the basic economic problems are planned, done and dictated by the government. The decisions
are made from the top authority and what ever the decisions made are relayed to the majority of
the people. Hence, it is a system in which, people do not have political and economic freedom.

3. Free market Economy

It refers to an individual consumer and businesses interact to solve the economic problems. The
price of commodity dictates what goods and services will be produced, for whom and how it will
be produced. This system is also consulting with the majority, which means that interaction takes
place between buyers and sellers in determining the price of particulars goods/ commodity.
4. Mixed market Economy
In reality, there is no Economy using the purest form of economic system. Thus, mixed
economy, with the elements of the first three systems mentioned, are present in varied degrees of
the so-called mixed market economy. This is both public and private institutions exercise
economic control.

Economic Resources

The aim of any Economic system is to produce the required output of goods and services on the
following Economic Resources.
1. Land – Land is one of the factors of production which include land use for agricultural or
industrial purposes, as well as natural resources taken from above or below the soil.
Natural resources consist of:
A. Energy resources – Fossil fuels, geothermal emissions.
B. Non- Energy resources – gold, diamond, limestone, air and water others.
2. Labor- refers to the basic factor of production which are productive services embodied in
human physical effort, skill, intellectual power and others.
3. Capital- Refers to the durable goods produced in order to produce other goods. It consists
of building, plant and machinery, roads computer, ships electric guitar.
These resources can be combined together in different proportions in the production process to
produce alternative types and quantities of goods and services. Given that our resources are
limited, this implies that the more resources used for the production of one particular commodity,
the less available the resources become for the production of other goods.