Allocation of Resources PDF

ALLOCATIO N OF RESOURCES ALLOCATION Is the process of dividing and distributing resources according to their alternative uses in order to respond to human beings’ needs and wants. Ex. 500 pesos THE NEED TO ALLOCATE RESOURCES GAVE BIRTH TO THREE FUNDAMENTAL ECONOMIC QUESTIONS: 1. What...

ALLOCATIO N OF RESOURCES ALLOCATION Is the process of dividing and distributing resources according to their alternative uses in order to respond to human beings’ needs and wants. Ex. 500 pesos THE NEED TO ALLOCATE RESOURCES GAVE BIRTH TO THREE FUNDAMENTAL ECONOMIC QUESTIONS: 1. What to produce 2. How to produce 3. For whom to produce WHAT TO PRODUCE The first economic problem or question is deciding what to produce. Goods and services are produced typically in response to identified consumer needs and wants. Firms then have to allocate their available inputs to produce these goods and services. Firms that are able to satisfy the needs and wants of consumers through the products and HOW TO PRODUCE Scarcity and the need for efficiency play a big role in deciding how to produce a certain good or provide a service. Due to limited resources which could be in the form of raw materials or labor, firms have to decide the process of production in a way that cost is minimized and productivity is maximized. FOR WHOM TO PRODUCE For whom the product is intended? Some are goods or services are produced only for a certain segment of the population. On other occasions, it is required to produce enough for the majority of the population. The target consumer impacts not only the quantity but, sometimes, the quality of goods and services as well. ECONOMIC SYSTEMS An economic system is the way by which society decides what goods and services to produce, how to produce them and for whom they will be produced. There are four types of economic systems. ECONOMIC SYSTEMS There are four types of economic systems: 1.Traditional 2.Market 3.Command 4.Mixed  Economic systems are distinguished based on the degree of government control, private sector ownership and exchange mechanism. Additionally , each type responds differently in satisfying the three fundamental economic problems of what to produce, how to produce and for whom to produce. TRADITIONAL ECONOMY The most basic system is a traditional economy Characterized by the barter system of trade and is guided by customs and habits. Modern economies evolved from this type of system. This is the norm in the absence of a currency or a standard medium of exchange such as paper money. What gets produced depends on the needs of the members of the community. Production processes follow those that have been handed down from their ancestors. Resources in this type of economy are communally owned, the goods produced are distributed to all the members of the  This is an economic system which relies extensively on agriculture. The basic economic decisions are based on conventions and customs of the past that the term traditional is referred to by other economies as “ underdeveloped economy” because it uses old methods handed down from the earlier generations  Is an economic system that is the opposite of the command economy. Individuals, not the government own most of the resources and have control over their use. Firms, producers or entrepreneurs decide how resources should be used, what products should be made and what price level these products can be sold. The government has limited role in a market economy. It cannot intervene with economic decisions done by individuals or firms thus preventing the government from becoming too powerful and controlling. In this system, the interaction between producers and consumers are highlighted because their responses to each other dictate the answers to MARKET ECONOMY This is characterized by competition and private ownership with minimal to no government intervention. Individuals have the freedom to choose what they will consume and businesses are free to produce goods and services based on the consumer’s needs and wants. What gets produced in the economy is driven by consumer choices and laws of demand and supply, or the interactions between consumers and producers ultimately dictate the market price.  In market economy, competition among different firms leads to innovation as firms look for new products to sell and cheaper ways to produce them. People need to acquire the technical skills and knowledge in order to function in this system. The consumers ultimately dictate what products should be produced since the firms will listen to the needs and demands of the consumers. Since earning profits is the main concern of firms, they might exploit workers. COMMAND ECONOMY A command economy is characterized by state ownership and high degree of government control. Individuals have limited to no economic freedom’ The government decides what gets produced in the economy. This is considered as an extreme type of economic system wherein the government owns and controls all the production processes. It is also known as centrally planned economy Equality among the members of the community is MIXED ECONOMY This type of economic system features attributes of both a market and command economy. In some mixed economies, the market participants are allowed economic freedom and private ownership The government intervenes only when necessary. In a mixed economy, economic questions  The reason why most countries have this kind of economic system is because it allows their societies to choose the best characteristics of the two economic systems where the government is given a say in economic activities without curtailing their economic liberties of individuals. In mixed economy, both the market and the government determine what products to be produced and at what price level it should be sold. The firms can organize and own factors of production while the government provides protection to its  The government exists in order to provide for production and employment standards, resource protection and maintenance of the competition. The government may tip the balance by acquiring more power over market, through the imposition of higher taxes and regulations such as disallowing the production of certain products and trade restrictions such as quotas.  What How For whom Market Determined by Determined by Determined by consumer choices producers consumer purchasing power Command Determined by the Determined by the Determined by the government government government Mixed Influenced by both Influenced by both Influenced by all the consumers and the consumers and the sectors of the government government economy Thank you