Economic Institutions PDF

ECONOMIC INSTITUTION Economy The economy is the institution that provides for the production and distribution of goods and services, which people in every society need ECONOMIC INSTITUTIONS Economic institutions are built around the survival needs of a society. arise out of the dete...

ECONOMIC INSTITUTION Economy The economy is the institution that provides for the production and distribution of goods and services, which people in every society need ECONOMIC INSTITUTIONS Economic institutions are built around the survival needs of a society. arise out of the determinants we make with respect to the goods we need. ECONOMIC INSTITUTIONS - A network of commercial organizations that determine how goods and services are produced, generated, distributed and purchased. ECONOMIC INSTITUTIONS - It refers to particular agencies or foundations devoted to the gathering or studying economic data, or authorized with the job of supplying a good. ECONOMIC INSTITUTIONS - It refers to structure of arrangements that are part of culture or society. ECONOMIC INSTITUTIONS They play a vital role in shaping and maintaining the stability of the society, its failure will result to an imbalance that will affect the community. ECONOMIC INSTITUTIONS FUNCTIONS: a. provide needs of the people b. Perform economic activities ECONOMIC INSTITUTIONS c. Enhance development thru financial services; d. Provide business opportunity to people by financing and loans; e. Make better the lives of individuals in the society. Economic System It is the means by which countries and governments distribute resources and trade goods and services. Economic System 1. Traditional 2. Command 3. Market 4. Mixed TRADITIONAL ECONOMY It is that in which customs, traditions, and beliefs are rich in developing the goods and services for the area.  Characteristics: Traditional economies are often based on one or a few of agriculture, hunting, fishing, and gathering. Barter and trade is often used in place of money. There is rarely a surplus produced. In other words, most of the goods and services are fully used.  Characteristics: Often, people in a traditional economy live in families or tribes. Societies may follow herds of animals in order to hunt and sustain those in the traditional economy. Many people progress from hunters to farmers where they can place permanent structures and start a society.  Advantages 1. each person in a traditional economy understands what they are supposed to do or what their job is. 2. everyone is aware of the resources and how they will be distributed among the group. 3. each person understands what they will receive when doing their jobs 4. there is less destruction to the environment because many of these traditional economies farm and use the land in a positive manner. EXAMPLES: -Redistribution -Reciprocity -Market Exchange  RECIPROCITY An economic activity in which two individuals or groups pass goods back and forth. RECIPROCITY It refers to the giving and taking of objects without the use of money or other media of exchange.  RECIPROCITY PURPOSES 1. Helping someone in need by sharing the goods 2. Creating, maintaining social relationships 3. Obtaining goods for oneself. RECIPROCITY More than economic gain, reciprocity is more of a social benefit. (it make relationship more binding and closer)  RECIPROCITY 3 KINDS: 1. GENERALIZED 2. BALANCED 3. NEGATIVE GENERALIZED RECIPROCITY Giving without expectation of quick and equivalent return. GENERALIZED RECIPROCITY Example: BAND – most foragers expect bandmates to share food and be generous with their possessions. BALANCED RECIPROCITY Products are transferred to someone and the donor expects a return in products of roughly the same value. BALANCED RECIPROCITY The return is immediate or whenever the donor demands or by some specified time in the future. BALANCED RECIPROCITY May bargain or not; It is a mutual exchange of gifts or invitations for social and political purposes. NEGATIVE RECIPROCITY Both parties attempt to gain all they can from the exchange while giving up as little as possible. NEGATIVE RECIPROCITY It is important for acquiring things they do not produce for themselves. - Often in the form of barter REDISTRIBUTION to distribute a society's wealth in a different way than exists at present. They usually function as economic leveling mechanisms REDISTRIBUTION Flow of goods and services to central authority, then returned in different form REDISTRIBUTION Church tithes Potlatch ( economic system of South America) MARKET EXCHANGE It means that they are bought and sold at a price measured in money. MARKET EXCHANGE Reqts: 1. Some object used as a medium of exchange that is money; 2. A rate a which goods exchange for money that is prices; 3. Parties to exchanges who have alternative buyers or sellers and are free to make the best deal that is prices determined by supply and demand. MARKET EXCHANGE There is absence of physical coercion; Prices are determined by supply and demand (freed market)  COMMAND ECONOMY It is controlled by a centralized power. This kind of economy tends to develop when a country finds itself in possession of a very large amount of valuable resource(s).  Advantages the government can mobilize resources on a massive scale. The government can focus on the good of the society rather an individual.  Disadvantages It is hard for the central planners to provide for everyone’s needs. There is a lack of innovation since there is no need to take any risk. Workers are also forced to pursue jobs the government deems fit.  MARKET ECONOMY There is no government intervention in a pure market economy (“laissez-faire“). However, no truly free market economy exists in the world. In this type of economy, there is a separation of the government and the market.  Advantages Consumers pay the highest price they want to, and businesses only produce profitable goods and services. There is a lot of incentive for entrepreneurship. This leads to the most efficient use of the factors of production since businesses are very competitive. Businesses invest heavily in research and development. There is an incentive for constant innovation as companies compete to provide better products for consumers.  Disadvantages Due to the fiercely competitive nature of a free market, businesses will not care for the disadvantaged like the elderly or disabled. This leads to higher income inequality. Since the market is driven solely by self- interest, economic needs have a priority over social and human needs like providing healthcare for the poor. Consumers can also be exploited by monopolies.  MIXED ECONOMY A mixed economy is a combination of different types of economic systems. This economic system is a cross between a market economy and command economy. In the most common types of mixed economies, the market is more or less free of government ownership.  Advantage This means that private businesses can run more efficiently and cut costs down than a government entity might. The government can intervene to correct market failures. Governments can create safety net programs like healthcare or social security. In a mixed economy, governments can use taxation policies to redistribute income and reduce inequality. Disadvantage There are criticisms from both sides arguing that sometimes there is too much government intervention and sometimes there isn’t enough. A common problem is that the state run industries are often subsidized by the government and run into large debts because they are uncompetitive. TRANSFER / TRANSFER PAYMENT It is a redistribution of income or resources in the market system. It refers to payments or transactions where there is no value added money to the economy. TRANSFER / TRANSFER PAYMENT There is no additional production of goods and services but just transfer of money from private to government or vice-versa. TRANSFER / TRANSFER PAYMENT Examples: -Taxes -Social security -Pension -Housing -Health care or other public services