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The economic system of every country defines how a country's economy is organized. Due to potential flaws, such as scarcity, each republic requires a method for deciding how to utilize the industrious capital. As a result, the economic system provides answers to three main questions: the type of goods and services that will be generated, the productive capital used in production, and the intended users of the products and services. Furthermore, the way a culture reacts to these questions influences the economic structure of a nation.
There are four important forms of economic systems in today's world. In a command economy, the central economic authority such as government determines the kind of goods and services that will be produced since they own most of the properties (Belk, 1596). For instance, in the United States, as the production of foodstuffs is determined by the demand and supply, the government subsidizes others like sugar. In a market economy, the changes in the prices occur due to the interaction of buyers and sellers in the market thus guiding the economic decisions. Private Citizens own the majority of the resources (Kolmar, 46). Consequently, in the mixed economy, there are no pure market economies or commands as it displays physiognomies of modern economies. Additionally, in traditional economics, economic decisions are determined based on the beliefs and customs.
Therefore, all films or businesses have an obligation of determining what to produce with limited resources (Kolmar, 49). Similarly, the society determines the quantity of shelter and food to fulfill the available population. Due to the scarcity, when a firm decides to produce product A, it must relinquish production of product B, thus experiencing an opportunity cost. The film will provide goods that yield the highest benefits compared to cost. However, it gets difficult to answer this question when the film continues to expand (Belk, 1598).
How will goods and services be produced?
There are numerous ways of producing goods and services of equal quality. The determination of the production is based on the consumer's choice. It is critical for an entrepreneur to possess a vibrant understanding of the available alternatives (Kolmar, 52). It determines if the film will produce goods that it will sell itself or it will involve external contractors. The film is also able to decide if the production will occur locally or be outsourced to other countries. Therefore, it will guide in determining if the output will be capital intensive or labor intensive (Belk, 1599). Through a clear understanding of the marketplace, the entrepreneur will be able to select the best approach that will yield the highest benefits to the film.
Who will consume goods and services?
Businesses produce goods and services with an intention that someone will consume. For instance, in a free market, the consumption of products and services is determined by who can afford which is determined by the demand and supply (Belk, 1600). In this situation, no government intervention who can set prices. During production, producer addresses the question who will produce the product. Identifying the customers determine the kind of the products to provide as well as if the targeted consumer can afford the product (Kolmar, 53). Additionally, he or she will be able to know if there are enough customers to support the film before producing.
Belk, Russell. "You are what you can access: Sharing and collaborative consumption online." Journal of Business Research 67.8 (2014): 1595-1600.
Kolmar, Martin. "Introduction." Principles of Microeconomics. Springer, Cham, 2017. 45-53.
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