SS1 ECONOMICS FT LESSON NOTE

BASIC ECONOMIC SYSTEM /BASIC ECONOMIC PROBLEMS

ECONOMIC SYSTEM

Definition of Economic System: An economic system is a means by which societies or

governments organize and distribute available resources, services, and goods across a
geographic region or country. Economic systems regulate the factors of production, including
land, capital, labor, and physical resources. It is an arrangement specifying how production and
consumption are controlled in a society.

An economic system, or economic order, is a system of production, resource allocation and

distribution of goods and services within a society. An economic system is a way how a society
produces and distributes goods and services. It involves how things are made, who gets to
make them, how they are distributed, and how people get access to them. It's like a set of rules
that everyone in society follows when it comes to money and trade.

Types of Economic System: There are basically three types of economic system namely;
Capitalism or free market economy, Socialism and the Mixed Economy.

Capitalism: Capitalism or free market economy is an economic system wherein individuals own
and manage property in accordance with their desires, and free market forces establish prices
in a way that fits society's best interests. It is a type of economic system which is characterised
by private ownership of means of production. In this case, private individuals play greater role
than government in taking decisions on what to produce, how to Produce, for whom to produce
and the distribution of what has been produced. Examples of countries which practice
capitalism includetje United States of America, Japan, Australia, Singapore, Switzerland and
France.

Features of Capitalism or free market economy:

• Preivate ownership, • Existence of competition. • Maximisation of profit

• Accumulation of wealth. • Free market enterprise. • Exercise of individual initiative

Advantages of Capitalism:

• Choices for customers are made possible by capitalism.

• The economy is more economically efficient.

• It hasten economic development.

• It encouraged hard work as people are free to own property.

• It Promote different forms of production.

• It enhances technological development.

• Talents are fully utilized during the process of production.

Disadvantages of Capitalism:

• The possibility of exploiting and undervaluing labour

• It causes job insecurity and unemployment.

• Unhealthy competition/rivalry among investors/persons.

• Profit maximization at all cost.

• It increases crime rate because of an efforts to acquire wealth at all cost.

• It leads to economy inequality as only few individuals have full control of the means of
production.

Socialism or centrally planned or controlled economy:

Is an economy system or condition of society in which the means of production are owned and
controlled by the state (the government). Companies and industries or corporations that are
responsible for the production of goods and services required in the country are owned and
controlled by the government. The major aim of socialist economy is to produce goods and
services for the general welfare of the citizens. Examples of countries that operated socialist
economic system in the past are Poland, Bulgaria, Romania. In Africa they include, Angola,
Mozambique and Burkina Faso. In the present are, India, Republic of Korea, Republic of China,
Cuba. In Africa; Algeria, Guinea Bissau and Tazania.

Features of socialism or centrally planned or controlled economy;

• State ownership of means of production. • Promotion of welfare. • Non-profit motive

• Optimum utilisation of factors of Production. • Prevention of private monopoly.

• Non-price competition as prices of commodities are fairly stable unlike price competition in a
capitalist economy.

Advantages of socialism:

• Equitable distribution of resources.

• Economic security as jobs and employment for the citizens are guaranteed and secured.

• Centrally planned market as government takes decisions on goods and services produced and
their markets.
• Prevention of private monopoly as means of production are controlled by the government.

• Absence of exploitation since government provides all goods and services required by the
citizens.

Disadvantages of socialism:

• Absence of competition as all goods and services are provided by the government.

• It leads to state or government monopoly.

• Absence of creativity and innovation is absent as citizens solely rely on government for all their
needs.

• Absence of alternative choice as consumers have to accept whatever is produced by the state.

• It creates room for laziness as government provides everything everything for the people.

Mixed Economy: A mixed economic system is a system that combines aspects of both
capitalism and socialism. A mixed economic system protects private property and allows a level
of economic freedom in the use of capital, but also allows for governments to interfere in
economic activities in order to achieve social aims. Under this economic system, resources or
means of production are jointly owned and controlled by both public and private interests.
Examples of countries which operate mixed Economy are; Britain, Mexico, Peru. In Africa are;
Nigeria, Egypt, Tanzania, Kenya etc.

Features of Mixed Economy;.

• Joint participation. • Joint decisions. • Fair competition

• Checks and balances. • Freedom of choice

Advantages Mixed Economy:

• It prevent monopoly. • It ensures job security. • It ensures economic development

• There is freedom of choice. • Combination of food qualities of capitalism and socialism.

Disadvantages of Mixed Economy:

• Corruption and mismanagement • Lack of efficiency. • Exploitation of labour

• Emphasis on profit maximization at the expense of the citizens

• Inequality of wealth as wealth is not equitable distributed as there is a wide gap between the
rich and the poor.

ECONOMIC PROBLEMS
Definition of Economic problems: : The basic economic problems refers to the problems
people encounter in the society while attempting to satisfy their numerous wants with the
limited resources available to them. These basic economic problems of society include what to
produce?, how to produce?, for whom to produce? and how efficient is the resources being
utilised?.

What to Produce?; Since resources are limited and human wants are unlimited, societies must
decide what goods and services to produce and in what quantities as it is practically impossible
to produce all human wants or needs. This involves making choices about which products or
services are most needed or desired by the population.

Factors which determines what to produce;

• Cost of production; If cost of production is low, it would enable the producer to produce goods
and services to enable him make profit.

• Consumers income must be taken into consideration before the producer decides on what to
produce.

• Market demands for a particular set of goods and services must also be considered before
production.

• Availability of resources; When resources for production are available and affordable, the
producer will be encouraged to produce goods and services and vice versa.

• Consumer needs must also be taken into consideration before deciding on what to produce.

How to Produce: As soon as what to produce is established, the problem of 'how to produce' is
related to the production technique related to employ in the production of the decided goods
and services.

Factors which determines how to Produce;.

• Technique of production. • Technological advancement

• Relative cost of factors of Production etc

For Whom to Produce: All goods and services produced must get to the final consumers.
Production is incomplete until the goods and services get to the final consumers.

Factors which determines who to produce for;

• Level of income: The higher the level of income of the consumers, the more they are able to
buy goods and services produced and vice versa.

• Satisfaction of wants: All the goods and services produced either by individuals, firms or
government must satisfy the needs or wants of the society.
• Type of economic system: In the capitalist and mixed economies, who gets what depends on
the prices of the various products and the amount available to each individual, but in a socialist
economy, the state normally introduces a quota system in the distribution of goods and
services among the people.

How efficient is the resources being utilised?; Generally, if the output achieved with a given set
of resources is high relative to the input of resources used, then the resource utilization can be
considered efficient. Since the resources available in the society are limited relative to demand
for them, it becomes a wise decision to ensure that these limited resources are efficiently used
to produce the desired goods and services.

Factors which determines efficient use of resources;

• Quality of labour: the. Use of skilled labour could contribute to efficient and effective use and
allocation of resources in production and consequently an increase in the quantity and quality of
output.

• Techniques of production: The used of machines and equipment may produce more goods,
save time and reduce wastage.

ASSIGNMENT:

Every society be it capitalist, socialist or mixed economy, is faced with four (4) fundamental
economic problems. Explain (SSCE NOV. 1996)