An economic system is a set of rules used to allocate a society’s resources to satisfy its citizens needs. The resources of a society are:
factors of production (land, labour)
capital (money, machines, tools, buildings)
entrepreneurs (people who develop new ways to use economic resources)
Gross national product is the value of all final goods and services produced by an economy over a given period of time. It is used to forecast trends, analyse economies, or compare two or more economies.
Underground economy is the one, which includes revenues from illegal activities (e.g. gambling and prostitution) and bartering (trading goods and services directly, rather than paying with money).
The world’s 3 main economic systems are communism, socialism and capitalism.
For the communism it is typical public ownership, law economic freedom and planned economies. In this system it is only a small gap between rich and poor and unemployment and inflation are controlled easily.
For the socialism it is typical government planning, government ownership of production factors and high taxes, because the government pays for medical care and other social services.
For the capitalism it is typical market economies. The base of this system is market freedom where everybody can sell everything in market price. Market price is created by the market supply and demand. Supply is the producer’s ability and willingness to provide a good or service on a particular date at a given price. Demand is the amount of a good or service that consumers are willing to purchase on a given date at a given price. Relation between supply, demand and price can be graphical presented (demand curve, supply curve, equilibrium price).
Circular flow is one of the most important economic concept affecting our society. It is the movement of all resources within the economy. Another economic factor is the government, which rules the buying goods and services that benefit society as a whole. It is called public goods (roads, police protection). Government has also passed laws to foster competition, because competition benefits our economy.
Pure competition is when no single firm or group of firms in an industry are large enough to influence prices. This is theoretical ideal. But few industries work this way.
Oligopoly exists when a few large companies dominate an industry (e.g.
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