Economic Systems: Assets, Activities, and Market Dynamics

The Economy

The economy deals with the administration or use of existing resources in order to meet the needs of individuals and groups.

Economic Assets

People produce goods or products that can be economic. These products are material or tangible (car, fish, a garment), and work services are provided to individuals or groups (transport, trade, health). Economic goods are characterized by the following traits:

• They are limited and can be drained.
• They can be bought and sold.

Economic Activities

Economic activities are those that produce goods using different types of economic resources, which are called factors of production. These factors are the following:

• Natural resources - are provided directly by nature: earth, water, animals, etc.
• Human resources - are the people who bring their work, the fruit of their efforts, their knowledge, and experience.
• Capital - though often identified with money, it really is a factor of production of buildings, machinery, and facilities of any type.

Economic factors are grouped into sectors: primary, secondary, and tertiary levels.

Types of Economic Systems

• Planned or socialist: in which the state is the main owner of the factors of production and decides how the economy should operate.
• Interventional or centralized: Governments take steps and apply laws that affect production, economic activities, prices, etc.

The economic system adopted in most countries is the market economy.

Market Economy: Supply and Demand

The market economy is the system in which individuals and companies produce, buy, and sell goods and services freely. In practice, in market economies, governments are involved to a greater or lesser extent, through economic policy.

The market is the medium where goods and services are exchanged and prices are determined.

Supply and Demand

Supply: The set of goods and services consumers are willing to buy at a certain price. The prices of goods and services are determined by supply and demand.

• When the supply of goods is excessive, its price will fall to encourage consumers to buy that product.
• When the supply of goods is scarce, consumers are willing to pay more for it and lobby for increased supply.
• If a particular product is repeatedly announced, the demand for that good increases because many consumers want to buy it.