Resource Allocation and Economic Systems

On the principle that resources are scarce, the use and production of these involve constraints and trade-offs.

You have to allocate your resources in order to produce something that is in line with your objectives, as you have the same amount of time as anyone else. Based on this premise, resource allocation involves answering three questions:

1. What goods and services to produce?

2. How to produce these goods and services?

3. Who consumes these goods and services?

Resource allocation is influenced by the economic system adopted by society.

There are three types of economic systems:

1. Capitalist Economy – Free Markets. Resources are allocated to their most productive use through prices that are determined in markets.

2. Socialist Economy or Command Economy – Governments regulate it. Decisions about both allocations of resources and allocation of production and consumption are decided by the government.

3. Mixed Economy – A mix of Capitalist and Socialist Economy.