Elements of an Economic System
Economic systems mainly deal with the relationships between production
(supply) and consumption (demand). What is being produced has to be
consumed and what is being consumed has to be produced. Four elements
With the emergence of logistics, the manufacturing and
distribution are increasingly embedded. Further, all these elements,
especially manufacturing, are using inputs for their processes, also
known as factors of production. They include land (including
natural resources), capital and labor. The enterprise itself is often
considered as the fourth factor as its main purpose is the organization
of the other factors of production.
- Manufacturing. Transformation of materials into intermediate
and finished goods.
- Regulation. The way the production system is controlled
and regulated, such a taxation, incentives and standards (e.g.
labor laws). Mostly the role of governments, but increasingly
of international multilateral agreements.
- Distribution. Activities that link the elements of the
production system making goods and services available to the
consumer. Includes transport and communications as well as retailing.