Economic system, the concept, essence, structure

1. Topic 1.3 ECONOMIC SYSTEM, THE CONCEPT, ESSENCE, STRUCTURE

2. Economic system: definition

• An economic system is the organized framework through which a
society manages the production, allocation, and consumption of
goods and services
• It determines how resources are used to satisfy human needs,
typically answering what, how, and for whom to produce
What goods and services will be produced?
How will these goods and services be produced?
How much of the goods and services will be
produced?
To whom will the goods and services be distributed?
When will these goods and services be produced
and distributed?

3. Main components of economic system

Production Subsystem: The processes and
institutions involved in creating goods and services.
Distribution Subsystem: The mechanisms by which
goods and services reach consumers.
Consumption Subsystem: The final use of goods and
services.

4. PRODUCTION

• In order to live, people must have food, clothing and other material
means of life. In order to have these, people must produce them, they
must work
• Production is the creation of goods and services from raw materials.
Examples: Farming, manufacturing, creating art, building a house.

5.

6. Factors of Production: These are the foundational resources used to create goods and services: 

Factors of Production: These are the foundational
resources used to create goods and services:
Labor: Human effort and skills.
Capital: Tools, machinery, and infrastructure used in
production.
Physical Resources (Land): Natural resources such as
land, minerals, and energy.
Entrepreneurship: The innovative and organizational
skills that combine the other factors.
Information Resources: Knowledge and data used in
economic activities.

7. Distribution

• Distribution is the allocation of
these products among individuals
and groups.
• Examples: How food is shared in a
family, or how products are
allocated to different regions of a
country.

8. CONSUMPTION

• Consumption is the final use of
these goods and services to
satisfy human needs and wants
• Examples: Eating food, using a
computer, or wearing clothes.
• The act of using goods and
services to satisfy personal
needs and wants.

9.

• These phases are a connected
• For example, a farmer produces
food (production), a market
allocates it (distribution), people
buy it (exchange), and then they
eat it (consumption).

10. Institutions of Economic system These are the organizations and entities that play roles in the economy: 

Institutions of Economic system
These are the organizations and entities that play roles in the
economy:
Households: Units that consume goods
and services and often supply labor.
Firms (Businesses): Entities that produce
goods and services.
Government (State): The central power
in planned economies, or a regulatory
body in mixed economies

11. Factors of development of economic systems

12. The role of man in the economic system

consumer
investor
Man plays a
central role in
the economic
system, acting
as
entrepreneur
producer
employee

13. Key Roles of Humans in the Economy

Consumer: Humans drive the economy by demanding goods and services to
satisfy needs and wants
Producer/Employee: Individuals provide labor and skills, acting as a crucial
factor of production, creating goods and services, and building infrastructure.
Entrepreneur/Innovator: People create new businesses, products, and
technologies, driving economic development
Investor: Individuals accumulate capital, funding investments in commerce,
industry, and infrastructure

14. Formational and civilizational approaches to the analysis of economic systems

• Formational and civilizational
approaches are two primary
methods used to analyze the
evolution of economic systems
• The formational approach focuses
on material, ownership-based
stages (e.g., capitalism, socialism),
while the civilizational approach
emphasizes cultural, spiritual
options
Analysis of
economic system
civilizational
approach
formational
approach

15. Formational Approach to Economic Systems

• Rooted in Marxist theory, this
approach defines economic
systems based on their "mode of
production“
• The formational approach
focuses on material, ownershipbased factors, economic classes

16. «Mode of production» in Marxist theory (Formational Approach)

• a society considered as a whole,
including its economic base
(mode of production) and its
superstructure (political, legal,
and ideological institutions)
• еhe economic base (mode of
production) determines the
superstructure (politics,
ideology, culture).

17. Formational Approach to Economic Systems

According to
Marx theory
there are
5 main
formations
(modes of
productions)
•primitive communal
•slaveholding
•feudal
•bourgeois (capitalist)
•communist/socialist

18. Types of socio-economic formation

19.

20. Civilizational Approach to Economic Systems

• Representatives (N. Danilevsky,
O. Spengler, A. Toynbee)
• This approach analyzes economic systems
as part of unique civilizations (Western,
Eastern, Islamic).
• Uniqueness: Each civilization forms its
own system (Orthodox, Chinese, Western
European)
• It emphasizes non-material factors like
religion, mentality, customs, and social
values.
• It provides a better understanding of why,
for instance, a capitalist model might
function differently in Japan than in the
United States, as it takes account of
unique societal structures and traditions.

21. Civilizational Approach: types of economic systems