Economic Institutions, Assignments of Pakistan Studies and Culture

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M A F I N A L

ECONOMIC INSTITUTIONS

INTRODUCTION

 Every society needs to make effective use of the scarce resources. Goods and services have to be produced to meet the basic needs such as food, clothing, shelter, etc.  Economic institutions are responsible for organizing the production, exchange, distribution and consumption of goods and services.  Economic institution is also one of the basic institutions. For the sake of survival each society has an economic system ranging from simple to complex.

 Goods are tangible objects that are necessary (such as food, clothing, and shelter) or desired (such as DVDs and electric toothbrushes).  Services are intangible activities for which people are willing to pay (such as dry cleaning, a movie, or medical care).

• Goods are

commodities ranging

from necessities (food,

clothing, shelter) to

luxury items (cars,

swimming pools,

yachts).

Goods

• Services are

activities that benefit

others (e.g. the work

of priests, physicians,

teachers, and

computer software

specialists).

Services

SECTORS OF ECONOMY

 PRIMARY SECTOR PRODUCTION; the extraction of raw materials and resources from environment. (Agriculture, Raising Animals , Fishing, Forestry and mining)  SECONDARY SECTOR PRODUCTION; the processing of raw material (from primary sector) into finished goods. For example, steel workers process metal ore; auto workers then convert the ore into automobiles, trucks, and buses.  TERTIARY SECTOR PRODUCTION; the provision of services rather than goods. Tertiary sector production includes a wide range of activities, such as fast-food service, transportation, communication, education, real estate, advertising, sports, and entertainment.

Agriculture Sector

• 1. crops,
• 2. livestock,
• 3. fisheries
• 4. forestry Manufacturing sector
• 1. Large Scale Manufacturing (LSM)
• 2. Small Scale Manufacturing,
• 3. Slaughtering
• Sub-Sectors
• Wood Product, Engineering Products, Paper and Board, Food Beverage and Tobacco, Rubber, Iron and Steel Products, Automobiles, Leather Products, Electronics, Pharmaceuticals, Chemicals, Non Metallic mineral, Coke & Petroleum Products, Fertilizers, and Textile Services Sector
• 1. Transport,
• 2. Storage and Communication;
• 3. Wholesale and Retail Trade;
• 4. Finance and Insurance;
• 5. Housing Services (Ownership of Dwellings);
• 6. General Government Services (Public Administration and Defense); and
• Other Private Services (Social Services)

PROPERTY OWNERSHIP

1. Capitalism ; Economic system.

 Believes in individual ownership and competition.

 Freedom to succeed and freedom to fail

 Private ownership of capital (means of production)

 Profit is the motivator, competition is the regulator

(not government)

 Under pure capitalism, almost all goods would be

provided by the private sector

 “Survival of the fittest” --- only the strong survive in

capitalism!

Theory: When everyone is selfish and concerned with personal profit, everyone will benefit.

ECONOMIC STRUCTURE

 Communism ; Economic system.

 Believes in collective (group) ownership and a

planned economy ( government makes

decisions).

 Theory: Everyone pools their resources and

labor to evenly distribute everything.

 Everyone gets an EQUAL amount of everything, regardless of how hard you work or don’t work!

 “From each according to his ability, to each

according to his need.”

Karl Marx – 1848 - “The Communist Manifesto” Industrial Revolution – Europe – horrible working conditions - critique of capitalism

1. View of History – class struggle (bourgeoisie and proletariat)
2. Labor Theory of Value – all value comes from labor
3. Nature of the State – the state (government) always sides with the rich
4. Dictatorship of the Proletariat – poor must overthrow the government and set up a classless society

Characteristics Capitalism Socialism Ownership of Property Means of production owned by private individuals Means of production owned by government or cooperatives Consumer Prices Prices determined by supply and demand by the owners. The pursuit of the profit is the reason for distributing goods and services. Prices set by the government. Central committees plan production and set prices No profit motive in the distribution of goods and services. Efficiency and Innovation Free market competition encourages efficiency and innovation Government-owned businesses have less incentive for efficiency and innovation Taxation Limited taxes based on individual income High taxes necessary to pay for public services

Characteristics Communism Socialism Basic Philosophy From each according to his ability, to each according to his needs. From each according to his ability, to each according to his contribution. Economy Planned By Central government Central government Ownership of Economic Resources All economic resources are publicly owned and controlled by the government. Individuals hold no personal property or assets. Individuals own personal property but all industrial and production capacity is communally owned and managed by a democratically elected government. Class Distinction Class less society Classes exist but differences are diminished. It is possible for some people to earn more than others. China, Korea Norway, Sweden, and Denmark

LABOUR FORCE

 This may includes;  the self-employed; earning income directly from one's own business, trade, or profession rather than as a specified salary or wages from an employer  the employee ;a person who works for a public or private employer and receives remuneration in wages, salary, commission, tips, or in kind  The unemployed; a person of working age, willing to work for an earning but fails to find a job

3. DISTRIBUTION OF PRODUCTION

The products are distributed among members of society by various groups called traders and businessmen.

EXCHANGE VALUE

 The produced goods and services have their exchange value, which can be measured in cash or kind.  The first known currency was used in 600 BC (Lydia,Turkey)  Coins then evolved into bank notes around 1661 AD  The first credit card was introduced in 1946  Kind (in the form of goods and services)

FUNCTIONS OF ECONOMIC INSTITUTIONS

1. Power and Authority; Power is the intentional influence over the beliefs, emotions and behaviours of people while authority refers to the formal power to act  The economic resources provide power and authority to its holder.  Wealth is a great power which authorizes one to hold control of various agencies, organizations and resources.