In countries, labor, money, goods, and services can move freely, to create producing and consuming systems {economy}|. Economies have variable labor, capital, natural resources, land, production methods, technologies, and income distributions, which affect societal and personal goods-and-services preferences.
Economy divisions {functional category} {situs} are manufacturing, commerce, education, law enforcement, finance, transportation, and government. Economy parts have equal status.
Market economies use supply and demand in open markets {invisible hand}| to regulate prices.
People have jobs {employment}|. Full employment is impossible. Need for unskilled labor always decreases over time. Automation displaces workers. People can be training or retraining. Business cycles change demand. Industries have different productivities. Unit-cost increase is greater near full capacity. Time lags delay reaching full capacity.
Job changing, automation, and retraining can cause unemployment {frictional unemployment}.
Everyone that wants to work can be working {full employment}. At full employment, increasing product-1 production causes decreasing product-2 production.
Economies {planned economy}| {command economy} can have central-government planning boards, which calculate and set production-unit prices, inputs, and outputs, based on value, desired distribution, and national goals. Bargaining sets output quotas. Consumers choose what to buy.
effects
Planned economies emphasize output, rather than cost. Planned economies often have poor-quality output, because they set price with little regard for cost, so managers must minimize costs.
incentives
In planned economies, incentives depend on goods produced {piece-rate}. Manual laborers and skilled workers have good pay. Service jobs pay less.
government
Government services and staple goods are free or cheap, such as housing, basic foods, medicine, and school.
National government can perform free-market business functions in one or more markets {state capitalism}|. Market economies can have state ownership of capital and investment.
Market economies can have state ownership of capital, resources, and businesses {state monopoly}|.
Economies {market economy}| can allow production units to decide what and how much to produce, and consumers to decide what and how much to consume, in open markets.
assumptions
People can buy or sell in all markets. People act in their self-interest to increase income and decrease cost. People know prices.
Market economies use supply and demand in open markets to regulate prices, by the invisible hand. All markets and prices interconnect. Demand for one product reduces demand for other products. Supply of one product reduces supply of other products. Price changes reflect everyone's self-interest and so bring about greatest common good {utility, market}.
regulation
Pure market economies do not necessarily result in full people or resource employment, economic growth, needed public services, or ideal income distribution, so government must regulate some markets. Government can create good markets, provide needed information, block monopolies, assess social costs, and control external effects.
competition
If free-market economies have many buyers and sellers, exchanges are insignificant percentage of total exchanges, and buyers and sellers do not cooperate, then sellers compete for buyers in pure competition.
Free-market economies can have no business regulations and allow all good and service exchanges {laissez-faire, market}|.
Workers can elect company leaders {worker-control capitalism}| or run company themselves {worker-control socialism}.
Workers can control capital {syndicalism}|.
Market economies can adjust markets through central planning and/or decentralized changes {socialism}| {market socialism}, to more equally distribute wealth and income based on need or effort.
Economies {state socialism}| {central-planning socialism} can have centralized economic planning.
Government can control a capitalist society {national socialism}|.
Economies {subsistence economy}| can depend on families or small communities, which produce and consume only their own products.
After feudalism, European countries tried to start colonies, acquire gold and silver, mine minerals, build commercial and military navies, and industrialize {mercantilism}|. Objective was positive trade balance.
Developing nations often have poor markets, poor distribution systems, and high underemployment; export resources but not finished goods; need imports but have no cash to pay for them; and have low taxes, few schools, small wealthy class, no middle class, low investment rate, untrained business class, and poor agricultural techniques. Developing countries need capital goods and investment to change these problems {transition economy}| and become developed countries.
Modern economic production depends on machines and large-scale output {industrialization}|. Industrialization makes cheaper goods and leads to higher population, and so causes more industrialization. Developing-society industrialization separates people into groups that work and groups that are traditional.
Meeting current economic needs responsibly {sustainable development}| can allow future generations to meet their economic needs. Wealth per capita can increase at optimum rate. Wealth is capital, natural resources, knowledge, skill, and organizations, but income includes only goods and services value.
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Date Modified: 2022.0225