Question: Define what is meant by an economic system. Explain how Australia's economic system attempts to solve the economic problem.

Essay by aliblahblahHigh School, 12th gradeA+, March 2005

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Each society is faced with a problem concerning their economic state. The economic problem is that there are limited resources in relation to unlimited wants. This problem brings about the need for a system to answer questions like what to produce, how to produce, how much to produce and how to distribute production. An economic system is the organisational and institutional pattern through which choices are made about which wants to satisfy, and how to allocate resources to do this. The different economic systems include planned economies, market economies and mixed economies. Australia has a mixed-market economic system in which there is a mixture of control by the government and freedom of individual enterprise and in which the basic economic questions are answered in the market place.

An economic system must answer the questions 'what to produce?', 'how much to produce', 'how to produce' and 'for whom to produce'.

The economic problem creates a situation where economies must decide which good or service to produce at the cost of another good or service not being produced, as a result of the limited resources available. For example, toffee apples are produced at the opportunity cost of fantails. The decision of the quantities the good will be produced in must also be determined. The question of 'how to produce' refers to the combination of resources used to produce a good or service. For example, a particular confectionary item can be produced by human effort (labour) or machines (capital), hence, the decision of which is the more efficient means of production must be made. Who gets the goods and services that are produced is the final decision that is made in production; it determines to whom the goods and services will be distributed to. There are two theoretical extremes of how these...