Understanding the foundations of economic systems and growth helps us grasp what economics is, how it impacts our lives, and what factors influence its growth. Economics, as a science intertwined with various dimensions of everyday life, plays a crucial role in people’s sense of satisfaction with life and hope for the future. With these insights, the FFMag website briefly touches on some of the topics recognized as an introduction to economics.
What is Economics?
The science of economics, which has taken shape in two broad branches, microeconomics and macroeconomics, is devoted to issues related to production, consumption, and trade, and discusses how scarce resources are allocated among members of society. Economics can be defined as a social science that focuses on the production, distribution, and consumption of goods and services, analyzing the financial behaviors of individuals, businesses, governments, and societies at various levels and how they allocate their limited financial resources.
Microeconomics
The focal points studied in microeconomics include the behavior of consumers, individuals, companies, financial institutions, and the economic decision-making process, explaining its ultimate impact on larger economic systems and elucidating the reasons for valuing goods and methods of interacting with them. In the realm of supply and demand and their growth, examining the costs incurred in the production of goods and services, as well as the allocation and quality of labor, can also be seen as the footprint of microeconomics.
Macroeconomics
By understanding the foundations of economic systems and growth, we find that the topics discussed in macroeconomics pertain to macroeconomic issues and decisions, analyzing variables such as inflation, price increases, and their effects on the economic situation; also, subjects such as economic growth rate, gross domestic product (GDP), changes in unemployment rates, and the quality and method of national income distribution are discussed in this branch. In a word, it must be said that the subject of this branch of science, the study of economics as a whole, revolves around economic cycles and their growth and development.
Issues such as foreign trade, government fiscal and monetary policies, interest rates, overall production growth, and business cycles leading to expansion, prosperity, and recession are also discussed in macroeconomics.
Understanding the Foundations of Economic Systems and Growth
Familiarity with the various types of economic systems is one of the necessities and fundamental topics of introductory economics, which the FFMag website introduces. Economic systems refer to a set of economic elements that interact with each other, creating a cohesive system and forming the financial structure of society, influencing factors such as production, distribution, exchange of goods, and their use. There are typically four types of structure s that can be introduced as follows:
Traditional Economic System
This system, based on traditional methods, lacks much dynamism, and people in it do not benefit from rapid advancements. Economic behaviors and relationships in these systems are predictable, prioritizing societal interests over individual preferences. The main pillars of production in this system are agriculture, animal husbandry, and hunting, with no role for technology. This pattern can be seen among the Eskimos, some Canadian people, South Africans, and Asians.
Market Economic System
Understanding the foundations of economic systems and growth tells us that the market economic system values services, goods, or technology based on their accessibility, and the scarcer these items are, the higher their prices will be. In this system, competition plays a major role, and individuals’ motivation plays a crucial role in shaping interactions and supply and demand. In some cases, governments intervene with laws to prevent one-sided selfishness or prevent dangerous consequences and environmental damage. Taxation with the aim of income redistribution and transfer is another function of government involvement in these systems.
Command Economy and Central Control
One of the well-known systems is called the command economy system, in which the government takes control of the country’s economy and makes decisions about how to choose and distribute resources, the method of supplying goods, determining the level of imports and exports, and other necessary decisions, governing all aspects and dimensions of the country’s trade. Since there is no necessary alignment between the government’s needs and the people’s needs in this system, it provides a conducive environment for the emergence of black markets and illicit trades. Models of this system can be observed in Russia, China, South Korea, and Cuba.
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Mixed Economic System
It can be said that in different societies, a pure type of economic system is not implemented; rather, a combination and mixture of methods create economic structures, and almost all of them involve a central or governmental sector and a market sector. Decision-making about methods and the quality of product supply and services is done through the interaction between the government and the people. In such systems, the less the government’s share of economic interactions and legislation, the sign of more openness of the market space and greater economic dynamism and diversity, which leads to better conditions for public trust and stronger motivation for their entry into the market, resulting in higher public satisfaction and greater economic prosperity.
Understanding the foundations of economic systems and growth with basic terms
For a better understanding of the basics of economics, one must become familiar with the basic principles and common terms, some of which are mentioned below:
Economic Indicator
An economic indicator refers to data and statistics about a specific economic field and activity, obtained by analyzing functions and studying economic cycles, providing a basis for predicting future conditions and guiding the market, and is periodically published by government agencies or private organizations. Indicators have a significant impact on stock values, employment levels, and participation and activity in international markets.
Boom and Bust
Economic boom refers to a period of industrial or financial growth during which profits and money flow into society, whereas recession indicates a low growth or halt in economic growth.
Budget
The budget is a general plan formulated annually to define and explain public expenditures and taxes in the country.
Capital
Another term used in discussions related to understanding the foundations of economic systems and growth is capital, which refers to resources used to start and expand businesses and achieve profits, including physical assets such as buildings and machinery, intangible assets such as patents and trademarks, or financial assets such as stocks and investments.
Debt
Debt refers to money or something that one party, called the debtor, owes to another party, the creditor, and is commonly used in economics for large purchases by individuals, companies, and even governments, usually accompanied by repayment with additional interest and profit.
Financial System
Financial systems of each country consist of institutions and organizations that facilitate the movement of money within the economic structure.
Gross Domestic Product (GDP)
Gross domestic product reflects the total value of all goods and services produced in the country over a specific period of time.
Growth
Growth is defined as an increase in the per capita production of goods and services produced over specific periods of time.
Inflation
When prices rise in a country while the purchasing power of citizens decreases, inflation occurs, which is measured annually and announced as a percentage.
Stock Market
Stock markets are interconnected systems of businesses, investors, and securities where people buy or sell shares of companies.
In summary,
Understanding the foundations of economic systems and growth requires familiarity with specific terms and their definitions. The FFMag website has provided an introductory look at economics by introducing micro and macroeconomics, economic systems, and defining terms such as economic indicators, boom and bust, budget, capital, debt, financial system, GDP, growth, inflation, and stock market.
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By David Taha