Economics Essay

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1. What are the vital functions of an Economy? Explain the price mechanism. Ans: Economics is defined as a science which studies economic problems. Economic problems arise because man has unlimited wants or ends, the means or resources to satisfy them are limited, these resources are not specific but have alternative uses and man has therefor forced to choose between his wants. These problems are addressed by the system called as economic systems. Economic system is a mechanism which deals with the production, distribution and consumption of goods and services in a particular society. Economic system consists of people, institutes and their relationships to resources. Economy is a system by which people get their living. Just like a machine, made up different parts that perform specific functions, an economy is made up of a system which has different functions. Some people provide labor, some people provide land and others provide capital or entrepreneurship. All these parts which perform different functions work together and form the economy of the country. Economy includes farms, factories, mines, shops, banks, roads, railways, aircrafts, offices, schools, cinemas etc., which grants the people with the goods and services which they also use themselves or sell overseas in order to be able to buy imports. Vital functions of an Economy: Human existence mainly depends on 3 vital processes like feeding, digestion and growth. In the same way production, consumption and growth are vital factors of economics. Economies might differ in the organisation but all perform these three functions which are discussed below. Production of Goods and services - The First vital process of an economy is manufacture which must go on incessantly. Production comprises any action, and the stipulation of any service, which satisfies and is likely to satisfy a want. In this wider

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