Economics

The operation of any given economy encounters a fundamental economic problem which is the central theory of economics. This main problem is concerned with scarcity of resources and asserts that the finite resources which are available are not sufficient to fully satisfy very human want. In a scenario where there are very scarce resources and the human wants are various, the issue in question will be how to allocate the scarce resources in the production of goods and services. The factors of production which include labor, capital, land and entrepreneur have to be allocated in an apt manner in order to satisfy a human want. Therefore, economics concepts revolve around the methodologies and the possibilities of solving the puzzle of economics of allocating the limited means to satisfy the unlimited wants.

In economics, the human wants are the main driving force that stimulates the demand of goods and services in the market. It therefore requires that economist device mechanisms which will attempt to solve this great problem which affects broadly business operation. In the attempt, the economists have an obligation to classify the kind of problem encountered in each of the scenarios which consumers undergo. The change in income and price are the major factors which affect demand in the market (Heibroner, Milberg, n.d). Therefore, establishing the state of the market will help economists to prioritize various wants and manage the production process in the satisfying of as many human wants as possible.

It is important to consider the state of consumers who are a major influence on the choice on what to produce. The goods and services which should be produced must fit the consumers purchasing power and their budget. Different models in economics have explained the concept of choice in different manners. Examples of these models include socialism, communism, capitalism and the free market economy.

There are three types of economies which have been proposed by various theorists such as Helbroner and Singer. The first type of economy is the market economy where the national and state governments act minimally leaving the consumers and their decisions of buying to control the economy. In market economy, every decision is derived from the market assumptions in developing the economy of a country. To the consumer, this type of economy is most preferred since every decision of price change is fully depended on the consumer purchasing decisions (Heibroner, Milberg, n.d). To various industries, this economy discourages development as it reduces or entirely eliminates subsidies for such industries. The predetermination of prices is yet another demerit of the system.

The second type of system is the planned economy also called command economy. The government plays an integral part to regulate all the production and distribution processes in a business. The commodities to be produced and their process are tightly regulated by the government and as one of the demerits the market forces do not have any power in deciding the market price. There is a relatively slow response to the changes in consumer needs and the fluctuation of demand and supply patterns. The only advantage is that in this economy, all the available resources are directed in production and expenses such as advertisement are cut. The final type of economy is the mixed economy which is a combination of both a planned and market economy which works in cohesiveness. In this system, there is sound flexibility in some aspects while in other parts, there is some government control. The mixed economy comprises of both the socialist and capitalist axioms and is typical in societies which seek to balance economical and political view.