Chapter 2, Problem 1AA

To determine

To explain:The setup and working of a new economic system similar to that of the U.S.

Answer to Problem 1AA

Formation of an economic system like the U.S. and adopting its workings as in the form of a mixed economy where the decisions are taken holding the views of both the sectors is important so as to make the country work under a free-enterprise system with the existence of laissez-faire. Capitalism requires the economy to be free from government rules and regulations for every decision in the market as well as the economy. The market should work with the profit incentive motive creating competition so that the market can expand and grow at a large scale.

But along with considering the profit motive, economic equity has to be maintained performing the circular flow of income and output which actually has no particular beginning or end because of the unlimited needs of the people. Along with satisfying the people with their demands and facilities, keeping the welfare and profit motive in balance, the standard of living can be enhanced which would take economic growth towards great heights.

Explanation of Solution

In the process of formation of a new country or a new economic system, there are various things to be taken care of:

• Initially, the functioning of the economic system should be done with the motive of overall growth along with providing democracy in the system.
• There should be a mixed economy if a system like the U.S is needed, where both the sectors contribute to the maximum.
• As a mixed economy is a preference, there should be a free enterprise economy where the working is based on the market forces and not on any regulations.
• To reach the level of being a developed country like the U.S., being a profit incentive is the need to increase the standard of living of the people.

Economics Concept Introduction

Introduction:

MAJOR TERMS EXPLAINED:

Economic system: It is a system that performs the activities of production, allocation and distribution of commodities and even the services within an area assigned or worked for.

Capitalism: It is a system in which the working and control are done by the market economy. In this, private individuals handle working and not any central rule, which is said to be a command economy.

Laissez-faire: It is a practice in the economic system where no government intervention takes place in the business and the economy is known as free-market capitalism.

Mixed economy: It is an economic system that performs with the regulations of both the private and the public sectors.

Free-enterprise economy: It is a system in which all the economic activities are governed and performed by the forces of demand and supply of the market.