Way to economics 07

Way to economics 07

Analyses the ways of organizing to solve basic

economic problems.

Mechanism or the institutional framework made by people who live
within a society to solve basic economic problems is called an economic
system or an economic organization.

 Institutions of an economic system operate according to the rules and
regulations made by man.

 As these institutions consist of men they are live and active.

 Similar to the natural elements of a physical system, economic
institutions are the elements of an economic system.

 These economic institutions are also called as institutional characteristics.

 Various forms of institutional patterns can be seen in an economy
depending upon social, cultural and ancient patterns prevailing at each
country.

 Although there are some differences the main elements of an economic
system are as follows.

 Households
 Government
 Business firms
 Labour organizations
 Non governmental organizations
 Markets
 Incentives
 Legal structure
 Values, traditions and culture
 From these main elements special parties who make decisions in an
economic systems are the households, government, business firms, labour
organizations and the non-governmental organizations.

 The most important institutional characteristic of an economic system is
the household.

 A group of people who lives under the same shelter and who share a
common budget is called a household.

 Households of various societies can be in the forms of nuclear families or
extended families.

 On the one hand households are the suppliers of labour and on the other
hand they are the consumers of most of goods and services produced.

 Also households are the owners of factors of production.

 Households perform some important duties within an economic system.

 These duties are also considered as the economic decisions of households.

 These duties include,

1. Making decisions related to the supply of factors
2. Making decisions related to the purchase of goods and services.
3. Making decisions related to how much is consumed and how
much is saved.

 Each and every country has form of a government and these governments
have large authority.

 Duties of a government are as follows.
 Protection of economic and personal rights
 Regulation of industries and businesses
 Provision of goods and services
 Redistribution of income
 Making of rules, regulations and constitutions
 There are various forms of business firms existing within an economy

Example:- private, cooperative, state

 Duties of business firms are as follows
 Purchasing of factors of production
 Deciding what to produce, in what quantity, how to produce and whom to produce
 Producing of goods and services
 Selling of goods and services at a reasonable price
 Some duties of labour organizations made by labourers are as follows

1. Act in order to protect employee rights
2. Influence over employment, production technology and wage level

 Non-governmental organizations that have emerged in modern economies
have some important duties. These duties show a similarity to the duties
of a government.

 Example :- Elimination of poverty
 Protection of environment
 Providing welfare for the affected people at natural disasters.