Goals of Economic System

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Entrepreneurship

Labor

To make land and capital productive requires labor, the efforts or activities of people hired to assist in the production of goods and services. In this sense, labor refers not to the workers themselves but to the service they provide by working.

In a broader sense, however, “labor” also means the services of everyone who works for a living. We often refer to the labor force of a nation – that is, all the people above a certain age who have jobs or are seeking jobs. The meaning of “labor force” and the notion of labor as a factor of production are different concepts in economics. The distinction between the two is generally clear from the context.

For production of goods or services, the three factors described above must be organized and combined. This is where entrepreneurship (sometimes called “ownership”) enters the picture. Entrepreneurs recognize the opportunities to be gained from production. The entrepreneur assembles the factors of production, raises the necessary money, organizes the management, makes the basic business policy decisions, and reaps the gains of success or the losses of failure.

(From “Contemporary Microeconomics”by Milton Spencer)

Every society seeks to attain certain objectives. Four goals that are fundamental to all economic systems are efficiency, equity, stability, and growth. The meanings of these terms are worth examining because they are universal standards used for judging economic practices and policies.

Efficiency: Full Employment of Resources

Because every society possesses only limited amounts of the various factors of production, it is important to use them efficiently. What does this mean? In general, efficiency is the best use of available resources to attain a desired result.

Equity: Fairness or Economic Justice

Consideration of economic efficiency does not address the question of how a society’s goods are shared. This is a matter of income distribution. Itconcerns the division of a society’s output (that is, the income or value of what society earns from production) among its members. Because income distribution deals with the matter of who gets how much, it raises fundamental issues of equity, or justice. One of the major goals of our society is to achieve an equitable distribution of income. It is important to note that equitable means “fair” or “just,” not “equal.”

Stability: Steady Average Price Level

A third economic goal of every society is to achieve stability of prices. This does not mean that all prices should be stable. That would be impossible in a society in which people are free to make economic decisions. However, it means that the general or average level of prices should be reasonably stable. This goal is important because the costs to society of a sharply rising average price level – inflation – are serious and pervasive.

Growth: Rising Output per Person

A fourth economic goal of every society is economic growth. By this is meant an increase in the quantity of goods and services produced per person – in other words, a rising standard of living.