00:00 Hello, welcome to this lesson. My name is Cornelius and I will be taking you economics SS1.

00:15 And the topic for today is basic economic problems of society. So in this lesson, we are going

00:22 to be looking at what an economic system is, the basic economic problems of society,

00:28 and lastly efficient use of resources. So we begin with an economic system. An economic system

00:35 is an organized way in which a state or nation allocates its resources and apportioned goods and

00:41 services in the national community. The economic system of a state determines the way in which

00:46 the available productive resources within the state will be owned, managed, and utilized for

00:52 the satisfaction of human wants. Now if you recall our introductory class, we talked about

00:57 scarcity. We talked about how we do not have abundant resources. So we have to make the best use

01:02 of what we have. Now we're going to look at it from the angle of a state that is a country for

01:07 example. We have to decide how best to manage our resources. So the economic system is what

01:14 defines how the resources of the state is going to be used. So whatever economic system is

01:19 operational within a country or a nation will give us the guidelines or the guidance on how

01:25 we're going to apportioned resources and allocate them. So now that we understand what an economic

01:30 system is, we move forward to the types of economic systems. So globally, there are three types of

01:34 economic systems that are practiced. The first is the capitalism or free market economy,

01:39 the second is socialism, and then the last is the mixed economy. So what is capitalism? Capitalism

01:46 is a form of economic organization in which the means of production are owned and controlled by

01:52 private individuals. In this system, individuals and firms have the rights to own and use

01:58 wealth to end income and to sell and purchase labor for wages with little government involvement.

02:05 Now in a capitalist system, the resources that are available within the country, private

02:11 individuals are free to own them. Private individuals can own those resources and they can define

02:16 how those resources are being used. And that system gives room. As we go forward, you see the contrast

02:22 with other economic systems and we'll get to discuss what is the best or what is most practical.

02:29 Now we move on to still with capitalism. It says the function of regulating the economy is then

02:36 achieved mainly through the market forces where prices and profit dictates where and how resources

02:43 are used and allocated. Again, if you remember when we're talking about demand and supply,

02:48 we talked about the price system and we said the price system gives the direction, the controls,

02:54 the demand and supply and then it defines how the demand is going to be met and how that supply

02:59 is going to come about. So we're looking at similar concepts here again with the economic system.

03:04 So this is talking about the broader view of how the price system works. So in the capitalist system,

03:10 the price system defines or is the guiding principle for how resources are allocated. So if the price

03:17 is good, the resources are going to move in that direction and those goods or services are going

03:22 to be produced. The prices are not good, the people are not demanding them, then the resources

03:26 are not going to move in that direction. Now we move on to examples of countries that practice

03:32 a capitalist system. So we have USA, Japan, Australia, France and Italy. These are regarded as capitalist

03:41 states, capitalist economies. Now features of capitalism. From our definition, we already see that

03:48 private ownership of productive resources. So like we said, from our definition of capitalism,

03:54 the resources that are available within the states are private individuals can own them

04:01 and private individuals can control them. By private individuals, people order them the government.

04:06 So yourself, myself, we are free to own these resources. The next feature of capitalism is freedom

04:12 of choice. So like we said, because the private individuals own those resources, they are free to decide

04:19 what to do with those resources. So if I have, for example, capital, I can decide where I want to pump

04:24 my capital into. If you, for example, have a label, you can decide where you want to work or how you

04:29 want to make yourself available. So there's freedom of choice. Nobody controls. The price system,

04:34 like we said, gives the guidance where it's favorable. That's where we'll find the economic

04:38 activity tending towards. And we move on to more features. Production and consumption are regulated

04:45 by the price system. So we've explained that already. The price system is the guiding principle.

04:50 And then profit maximization is the goal within the capitalist system. Everyone wants to maximize

04:56 profits. And the last point is existence of competition. Now, because there is freedom, there is no

05:02 control. It means people can enter the market and exit at will. And when we have a lot of people

05:08 entering the market and exiting, then we're going to have competition because people want to stay

05:12 within the markets and new entrants want to find their own stronghold or their own food hold

05:18 within the market. So there's a lot of competition in the capitalist system. Now we move on to

05:23 advantages of capitalism. The first one is the encourages hard work. Like we said, there's freedom

05:29 of entry, there's freedom of exits. And what you get is what you what you deserve, what you've

05:33 earned. Nobody's given anyone aids in the capitalist system. So you work for what you have. And so

05:41 capitalism encourages hard work provision of alternative choice. So we said there are a lot of

05:45 players in the system because there's freedom of entry. So there are a lot of alternative products

05:51 or service available to the consumers. And that's a good one for the consumers because they have

05:56 alternative choices that they can choose from. More advantages. It says it leads to specialization.

06:02 Now, because in the capitalist system, there are a lot of players. So people, most of the players

06:08 begin to find unique niche areas for themselves. So they want the beginning to specialize because

06:14 when you have that specialty, you can now sell your service, you can sell your product,

06:20 and you've created a separate field for yourself. So capital promotes specialization and say it

06:28 hastens economic development. So when there's a lot of economic activity going on, players can come

06:34 into the market and exit, but the economy continues to grow because there's going to be continuous

06:38 movement. There's going to be continuous engagements in the market. And because more players

06:42 are coming to the market cannot go back to where it was. There's always going to be advancement.

06:47 No matter the normal players are coming and going, there's always the market is going to continue

06:52 to perpetuate itself. Now, more advantage. It says it stimulates free and efficient utilization

06:59 of productive resources. We've established over while discussing capitalism that nobody defines

07:05 where the resources are going to. So there is freedom. Resources are going to be efficiently used

07:10 because resources will only go in the direction of where there is a demand for it or where there is

07:14 agents need profitable need. In the capitalist system, if there is no profit or if it's not profitable,

07:20 the resources will not go in that direction because things are not free. Nobody's handing anyone

07:25 anything in the capitalist system. Now, when we talk about what we're going to be looking at

07:29 disadvantages of capitalism, the first one is it can lead to monopoly. Now, in the capitalist system,

07:35 it's there's a tendency for players, market players or economic agents to establish themselves as

07:42 monopolists, meaning that they become the only players in the market. Probably, they enjoy economies

07:48 of scale or they have resources that more players do not have. For example, they could be the first

07:53 entrance into the market. They could be the first company or the first firm that begins to produce

07:57 a certain product. And because they are the first entrance into the market, they get headway.

08:02 And they develop the technology, develop the resources. So it becomes very difficult for people to

08:08 come into the market. Also, they could begin to buy out smaller their competition. They could begin

08:12 to buy their acquired competition and become one big company. So then, they create a monopoly,

08:20 meaning that they are the only sellers and then they can define the prices, they can define the supply,

08:25 which is not good. But the capitalist system creates the environment for such a thing to happen.

08:30 Next one is it brings about economic inequality. Like we've said, in the capitalist system, you only

08:35 get what you've earned. So there's going to be a lot of inequality because we are not all of us

08:41 are gifted with the same resources or the same capabilities. So what one person is able to end

08:46 giving their resources or their social status or the economic situation that they found themselves

08:51 is certainly going to be different from what the other person can gain. So there's a lot of

08:56 inequality in the capitalist system. Next, we say it leads to unhealthy rivalry amongst investors.

09:04 Now in the capitalist system, there is always going to be that need to outdo the next person.

09:10 We talked about competition. When we talked about it, there's always going to be competition.

09:14 And this competition can tend towards an unhealthy rivalry. Market players are trying to come up with

09:21 the best solution to a problem. They are trying to come up with the best products. And then it's

09:25 going to get really unhealthy to put it that way. Next, we say it can lead to economic

09:32 exploitation. So we talked about monopolies. And when a company establishes itself as a monopoly,

09:38 then it can define the price it's selling at. It can control the supply in the markets.

09:42 It can create scarcity if it wants. And so when that kind of thing happens, we see exploitation

09:48 of the consumers. We can also see exploitation in the labor markets. We'll be treating labor

09:52 markets soon and you understand what we're talking about. You can also see exploitation because

09:57 industries or firms can exploit their employees. They can give them a body and they can pay them

10:03 very little. So there's a lot of potential for exploitation in the capitalist system.

10:09 And next one, we say it benefits only a few people in the society. In the capitalist system,

10:14 there's inequality. So not everyone can get, we all would be on the same level in the capitalist

10:21 system. It's what you're able to end what you're able to work for in the capitalist system that

10:27 that is what you're going to to get. So that's why you have a lot of rich people and you have the

10:31 high class, the middle class, the lower class. That is what you find in a capitalist system.

10:37 Moving on, we are going to be looking at another economic system. This is socialism. Now,

10:44 socialism is as you find is the direct opposite of capitalism. So let's see what socialism is.

10:50 We say socialism is the form of economic organization in which the productive means within a society

10:57 are collectively owned by the members of the society and are operated by a central body

11:03 or government. So now, when we talk about capitalism, we establish that the resources within the

11:09 states are owned or can be owned by private individuals. But I mean, the socialist system,

11:15 private individuals are not allowed to own resources. The resources are owned communally and the

11:21 government controls those resources. The government owns the resources on behalf of the states,

11:27 on behalf of the citizens and the government defines how those resources will be used.

11:31 So in this system, the central government holds the productive resources in trust for the entire

11:37 society and cooperation rather than competition and cooperation rather than competition guides

11:44 the economic activity. So in a socialist system, the goal is for us to synergize, for us to come

11:49 together and bring out about the best results for all members of the society, not necessarily,

11:54 or not the best result for those who build the resources. Examples of countries that practice

12:01 socialism, we have the Soviet Union, the Soviet Union's the long-time country. It used to exist.

12:06 It was a union of countries. So the Soviet Union was a typical case of socialism. We have Cuba,

12:13 we have China and Venezuela. So these are examples of socialist economic systems.

12:19 Now we look at features of socialism. The first one, like we said,

12:23 "Common ownership of productive means, private individuals are not only its,

12:28 the productive means are owned by everyone in the society." Now the second one is centrally

12:34 planned economy. So we said that the government holds the resources in trust, meaning that the

12:39 government holds it on behalf of the people. So because the government is one controlling the

12:44 resources, there is going to be a central planning. The government from the center decides

12:49 how the economy as a whole is going to function. So we have centrally planned economies and socialism.

12:54 And we talk about the next one, a classless society. So the idea behind the classless society is that

13:00 in socialism, we want the best for everyone. We want everyone to be equal. That is the goal in

13:05 socialism. So the government is going to design programs and systems that is going to keep

13:10 every household, every individual at par. So there's not going to be class. In the capitalist system,

13:15 we talked about having a high class, a middle class, and a lower class. But in the socialist system,

13:20 the goal is to have a classless society. Everyone is equal. Everyone has the same resources,

13:24 the same opportunities, and the same advantages or the same income. Now, absence of economic

13:33 rivalry. Now, because everyone is going to be provided for, or which is the goal of the socialist

13:38 system, there is going to be a need for competition on our rivalry, unhealthy rivalry, like we saw

13:45 in capitalism. Because everyone is going to be taking care of in the socialist system. So there

13:50 isn't much of an economic rivalry existing there. Now, last or next point, non-market economy,

13:57 which means that means of production and not for sale, and not all goods produced are meant for sale.

14:03 So in the socialist system, not all the goods that are produced are going to be sold. Some goods

14:08 are produced to be given to the people. Because since the government controls the resources,

14:13 the government produces those goods out of the resources, and the goal is to get those goods

14:18 out of service to the people without having to pay. Now, advantages of socialism. The first

14:24 one, absence of exploitation. Since the government controls everything from the center, it is believed

14:30 that there is going to be room for exploitation, like we find in the capitalist system. Because in the

14:34 capitalist system, everyone is trying to maximize their own returns. But in the socialist system,

14:40 the government is looking out for everyone. So there will be very few room for exploitation.

14:45 Next point, equitable distribution of resources. So we mentioned that again, the goal of the

14:52 socialist system is to ensure that everyone gets equal opportunity, equal provision, equal income.

14:59 So equitable distribution of the gold here is to get the resources to everyone, so everyone is

15:03 taking care of. Next point, readily available employment opportunities. Now, because the goal is to

15:10 get everyone to point to the economically stable, the government is going to create systems that is

15:15 for people to walk. There's going to be creation of employment opportunities so that everyone

15:20 can walk an end and income. So there's readily available employment opportunities. The next one

15:27 is it reduces wasteful use of productive resources on things such as advertising. Now, in a capitalist

15:34 system, because there's a lot of competition and everyone is trying to be ahead of the next person

15:39 or ahead of their competition, a lot of resources going to advertise them because the producers and

15:44 manufacturers are trying to get the attention of the markets. Now, in the socialist system,

15:48 where no one is competing, there is no reason to spend huge funds on things like advertising.

15:57 Now, those resources can go into providing essential service or goods for the people instead of

16:03 spending it on advertising. Advertising is just one example. There are a lot of things that we spend

16:07 money on in a capitalist system that because a socialist system is centralized and the goal is to

16:13 get everyone to an equal ground, we won't have to invest in all of those things. So, but we just

16:19 use advertising as an example. The next one is proper planning. Now, since there's central planning,

16:25 there's coordination from the center in the socialist system. The planning is going to be proper,

16:29 the planning is going to be all-encompassing. In the capitalist system, everyone, every economic

16:34 agent is having their own plan. But here, we have people that, but in the socialist system,

16:43 the plan is going to be central. So, that's the difference. Now, we're moving to the disadvantages

16:50 of socialism. The first one is loss of consumer sovereignty. In the capitalist system, the consumer

16:57 is king. That's the common balance. And the producers and manufacturers are trying to ensure

17:04 that the consumers get the best. But here, in the socialist system, because the goal is to get

17:10 things out to everyone, the consumer doesn't really have choice because they're trying to get the

17:17 best out of the resources. They're going to be very little alternatives and we're not going to

17:21 waste resources creating multiple products that save the same function. So, the consumer doesn't have

17:26 that sovereign position anymore because he's limited to what is given to him, as opposed to the

17:32 capitalism where he consumes free to choose. The next point is socialism can promote terrible bureaucratic

17:39 practices. Now, you know, since the government is handling everything in a socialist system,

17:45 and we know that the government is made up of humans and humans are not perfect. So, there's going

17:49 to be room for a lot of flaws and a lot of imperfection in that system, bureaucracy,

17:56 bottlenecks. We want to get this done. There are a lot of processes or necessary processes. So,

18:01 we find that kind of system in socialism. Now, the next one is rigid economy. Like I said, the

18:07 government decides what is going to be. The government is not going to invest in multiple products.

18:11 The government is going to try to get as few products as possible to maximize the utility of

18:19 the consumers or the people in the country. So, the economy is very rigid. This plant

18:24 you can't go out of what the central government has decided. The next point is planning,

18:29 expenditure can be very high and wasteful. So, when we were talking about the advantage we said,

18:34 we're not going to be wasting resources conducting or in areas like advertising. But here also,

18:40 we're going to spend a lot of money planning because when we want to plan, take Nigeria for example,

18:45 we have the six states and the federal capital. Now, if we want to plan for the entire country from

18:49 the center, a lot of resources are going to go into all of this. We need to set up government

18:54 agencies. We need to fund those agencies. We need to pay salaries. So, a lot of resources

18:59 go into central planning and it can be wasteful at times. Now, the next point is body sum

19:04 on the central government. Now, in a socialist system, because the government is handling everything,

19:10 the government has to deal with all the problems, all the issues. The government has to take

19:14 you up all of it. In a capitalist system, the private individuals can do it and they are

19:18 on end or there is an on ending supply of private individuals, market entrants that are going to

19:25 try to meet or solve all these problems. But in a socialist system, the government has to solve all

19:30 the problems by itself. So, it can be burdened some on the central government. Now, we move on to

19:36 the last economic system, which is a mixed economy. Now, if you pay that attention to when we

19:42 discuss the capitalist system and when we discuss the socialist system, you might already start

19:47 wondering how practical are these systems? How practical can we have these kind of structures

19:56 working? And that's where the mixed economy comes in. Because in reality, it's very difficult to have

20:02 a country or an economy that is totally capitalist or totally socialist. There's always going to be

20:08 a mix and this is where a lot of countries are. Now, a mixed economy is the form of the economic

20:13 organization where in both private and public enterprises are involved in the control, distribution

20:20 and use of productive resources of the society. Now, in the capitalist system, the private individuals

20:26 own the resources, the control the resources. In the socialist system, the government does that.

20:30 But in the mixed economy, we see a image between the government and the private sector. So,

20:37 the government controls some level of resources. The government has some level of control and direction

20:42 and then the private individuals also control resources and they're able to direct as well. So,

20:47 we see the government and private sector playing in the mixed economy. Now, in the mixed economy,

20:54 the aim is balancing central planning of the state or the government with the free participation

21:00 of individuals. Now, what this means is in the mixed economy, the government has a framework

21:06 that they are working with. Government creates the framework, the government decides the policies,

21:10 then they open the doors for private individuals also coming and plug themselves into the areas

21:16 that they can function. So, that the government, having created the framework that would drive the

21:21 economy, the private individuals now do the work that gets the economy moving. So, in the mixed

21:26 economy, we see the balance between planning, which central planning and then free participation.

21:31 Examples of countries that practice mixed economy, we have Nigeria, we have Britain, we have Kenya,

21:37 Mexico, etc. Like I said, this is the most realistic form of the economic system. This is what the

21:44 even the strictest socialist system still have some level of private involvement. Even though the

21:51 government is going to be very strict and they're going to control a lot of things, there will still

21:55 be some level of private involvement in the system. So, the mixed economy is the most practical

22:00 one, it's what you'll find in most countries in the world. Moving on to features of a mixed economy.

22:06 The first one is coexistence of public and private sectors. The government plays its part,

22:11 the private sector plays its part. The second one is resource allocation is partly determined by

22:15 the price system and partly by the government. So, we see the price system again coming from the

22:20 capitalist system and the price system has a role to play in the mixed economy, but the government

22:25 guides or serves us a guide when the price system begins to go out of work or out of context.

22:33 If the price system begins to go out of the desired goal of results that the government is going for,

22:39 the government can always direct or nudge the price system back or the economic system as a whole,

22:44 back in the direction that it wants it to go. The next feature is the government tries to control and

22:50 regulates monopolies. So, we talked about monopolies, discussed capitalism and we said the capitalism

22:57 creates that room for one player to become the only player in the market and to decide all the

23:02 elements in that market. Now, when you have the government coming in in the mixed economy, the

23:06 government is able to cut those kind of tendencies, the governments are able to prevent because when

23:12 we have a monopoly, it becomes exploitative, consumers are exploited, workers, labor is exploited,

23:17 and so on and so forth. So, that's where the government comes in and then shows that those kind of

23:21 tendencies do not take hold. The next one is the government takes steps to reduce income and

23:28 wealth inequalities. Now, because we know that a capitalist system is right with inequalities,

23:35 it's full of inequalities. When the government comes in and we have a mixed economy, the government

23:39 is going to try to reduce those inequalities to the barest minimum. They're going to try to ensure

23:45 that people are not having it worthwhile, some people are having it good. We cannot control how

23:51 the resources or the wealth that some people build up, but the government is going to try to ensure

23:54 that while some people are building wealth, some people are not living in penalty or poverty.

24:00 The next point is consumer sovereignty is protected. So, in the mixed economy, there's consumer

24:06 sovereignty as opposed to a capitalist system. Now, we move on to basic

24:15 economic problems of society. So, regardless of the economic system that is being operated in

24:20 a state or a country, there are basic problems that each every economy has to deal with. That's

24:26 what we're going to be looking at in this portion or this section of our lesson today. So, every

24:33 society, like I said, regardless of the economic system it operates, has to deal with these basic

24:38 economic problems and they are what to produce, how to produce, for whom to produce and then

24:46 efficient use of resources or efficiency of resource use. So, no matter the system that we're having,

24:54 there's going to be production going on and production drives the economy. Production is like

24:58 the foundation of the economy, whether it's goods or service. So, we have to decide how we're going

25:02 to produce what we are producing and who we are producing it for and we move to what's to produce.

25:08 So, this problem arises as a result of the limited nature of resources available to the society

25:15 and the only limited ones of the members of the society. In solving this problem, the economic

25:20 system being practiced in that society is a key determining factor. So, like we said, when we did,

25:27 we remember our introductory class, so economics, we talked about scarcity, we talked about wants

25:32 and we said ones are on ending ones are limitless and we take every individual's on ending ones and

25:39 you bring all of us together. We have a huge, a huge conglomeration of unlimited ones. We have a huge

25:47 compound or a huge ball of unlimited ones in society, but we have very little resources. So,

25:53 society has to decide how we meet all these different ones and still use our resources efficiently

26:00 because they are limited. Now, the economic system that is operating would decide how we go about

26:08 what's to produce. In the capitalist system, we said the price system drives, so where there is

26:12 demand for it, that is where the resources are going to and in the socialist system, the government

26:17 decides. So, the government can say this is what the people need at this moment, so this is

26:22 what we are going to be producing. So, the economic system is the key factor in determining what's to

26:28 produce. In the capitalist system, the price system saves as determining factor. This means that

26:34 goods and services that are in high demand will be produced. In the socialist system, the central

26:39 government makes a decision for what to produce. Now, factors that determine what to produce.

26:47 The first one is consumer income. So, the consumer income is going to decide or define what kind of

26:54 goods and services are going to be brought to the market. It doesn't make sense for the producers

26:59 to be bringing goods or services that are way above the income capacity of the people. So, take

27:06 for example, if a beverage maker is bringing a beverage product, say, cocoa product to the

27:14 market and this product is very expensive that no one in that market can buy it, that company is

27:20 going to run at a loss. So, when producers decide on what they want to produce, they also do their

27:27 research and find out what is the income capacity of the market, how much can the market spend,

27:32 that also defines or guides them on what to produce. The next one is consumer needs.

27:39 And as much as we, like we said, what people want, they are a lot of wants but the producers are going

27:46 to try to distill, try to factor it down to the most common ones, the ones that are in really high

27:54 demand and that's where the production is going to go towards and cost of production. Because of

28:00 production, the determines what is going to be brought to the market. If the producers cannot

28:04 afford to produce the product, then we're not going to have the product in the market. Or if they can

28:10 produce it at a very high cost and what it comes to the market and it's too expensive that the

28:14 people cannot buy it, then we're not going to have that product in the market because the producers

28:19 are not going to run at a loss or they would not want to run at a loss. Now, all the factors that

28:24 determine what to produce, we have the economic system, the market demand, we've talked about that

28:29 already and the availability of resources. So if the resources are not available in the economy,

28:34 the goods cannot be produced. That's why we have some countries that produce certain products

28:38 that and some countries cannot produce those very products. Take, for example, smartphones.

28:42 They are countries that do not produce smartphones at all because they do not have the resources

28:46 to manufacture those goods. Now, we move on to how to produce. So when we've decided what we are

28:52 going to produce, we need to decide on how we're going to go about the production. Now, this problem

28:57 arises as a result of the availability of different production techniques. The production technique

29:02 that will be adopted will likely depend on the available resources. Should capital intensive

29:10 approach be used or should the labor intensive approach be adopted? These are questions every

29:15 society has to answer. So when we talk about production, they are basically two ways to go

29:21 where they are doing capital intensive and when we talk capital refers to the assets,

29:29 refers to the use of machinery, use of resources and then labor intensive means that we're getting

29:35 more human hands to do the work. So how do we go about production, the economic system

29:43 defines. When we talked about the socialist system, we said there's a tendency to want to

29:48 provide employment for people. So in a socialist system, we're likely going to see a labor intensive

29:54 method being used. We're in a capitalist system because we want to reduce costs and increase profits.

30:00 We're likely going to see a labor, sorry, a capital intensive system being used. We have machines

30:06 and heavy equipment and machinery will be doing most or the bulk of the production. Now, the factors

30:12 that determine how to produce, we have technological advancement, we have relative cost of the

30:18 factors of production, we have the technique of production and production function,

30:23 what the production is going to or how the production has been designed. We have industries that

30:29 have templates or how to go about producing their products. So that template or that's the way

30:36 the production takes place would define if we're using or would decide if we're using more

30:42 machines or we're using more human hands and then the producers desire. If the producer might

30:47 decide they want to spend less on human labor, so they're going to look for machines that can

30:53 do the work. If the producers want more human hands, then they're going to use a labor intensive

30:58 means for production. Now, for whom to produce, we've decided on what we're going to produce,

31:05 we've solved the problem of how we're going to go about producing it. Now we have to decide

31:09 who are we going to produce it for. Because like we said, in the economy there are a lot of people

31:13 with different wants and these ones are unlimited, but we have to settle because given the resources

31:20 we have, we can't settle everyone. So who are we going to produce for. Now let's take a look.

31:26 This problem deals with making decisions regarding the segment of the society, goods and services

31:32 should be made for. Since resources are scarce, everyone's needs can't be satisfied at the same time,

31:40 therefore a problem of choice arises. Now, factors that determine for whom to produce,

31:48 we have one economic system. If it's a socialist system for whom to produce, the government

31:54 want to produce the resources for the people, the government can decide that this section of the

32:01 economy needs this intervention and so the government is going to invest resources into producing

32:06 the goods or the service for that sector of the economy. If it's a capitalist system, the capitalist

32:11 is looking at what section of the economy can afford the service and bring it to the market.

32:15 And when the capitalist finds that the segment of the market can afford my product,

32:20 that is the segment of the market that the capitalist is going to go after. In common levels,

32:25 decide defines or determines for whom to produce. So you don't want to produce for people that

32:30 cannot afford your service. So if you are producing a high end or a luxury product for a lower class

32:37 market, you are going to run into very huge loss because the people you are producing that

32:42 products for cannot afford it. Now, satisfaction of ones. That is another factor that defines

32:49 for whom to produce contribution to the national income, defines for whom to produce. You most likely

32:54 see this in a socialist system where we are trying to balance things out and trying to create

32:59 equity. So those who are contributing more, we are going to see more resources being pushed

33:05 in their direction. Let's look at efficient efficiency of resource use. So we talked about production,

33:12 how to produce, who to produce, how are we going about the production. Now, when we produce,

33:18 we are using resources. It could be human resources, it could be material resources. Now, how do we

33:23 efficiently use these resources that are available? That's what we are going to be taking in look at.

33:28 Now, efficiency of resource use refers to the optimum use of the factors of production

33:34 to achieve the highest possible output or results at the most reasonable cost. So when we talk

33:40 about optimum use, we are saying the best possible use, that if we assess our use of those resources,

33:45 we can no longer come up with a better way that the resource could have been used. Think of it

33:50 this way. If you take a test and the score limit for that test is 10, if it's got 10 over 10,

33:56 that's the optimum. There is no way you can get 11 over 10. So apply that concept to efficiency

34:03 of resource use. So we want a situation where when we assess our use of the resources, we want to get

34:08 10 over 10. We want to say this was the best way the resource could have been used. There is no

34:13 better way we could have used the resource. So that's what we mean when we say optimum use of the

34:18 factors of production. So we want to get the highest possible output and we want to reduce cost,

34:24 we want to keep costs at the barest minimum. So how do we go about that? Now since resources are

34:30 limited, societies need to decide how best to combine their resources in order to achieve the

34:36 highest possible results. We do not have room for a lot of trial and error. We have to get it

34:42 right with the fewest number of trials. So the combination of resources being physical,

34:48 being the material that will get us to the highest or that optimum point. That is what we are concerned

34:53 about in efficiency of resource use. Now factors that determine efficient use of resources.

35:00 The first one is quality of labor. If the quality of labor is low, then we're going to have very

35:09 poor products and those poor products might not be able to sell at the markets to go to waste.

35:14 Techniques of production, how we go about the production, we define if we are using our resources

35:19 efficiently. If we could be doing the work with machines and we're using human labor, then we

35:25 might be wasting resources. Reduction of waste stage defines how determines efficient use of resources,

35:33 resource allocation, full employment of productive resources. These are the factors that define

35:40 or that determine rather efficient use of resources. Now, before we round of the class,

35:48 I have an exercise for you. I want you to write five advantages and five disadvantages of

35:54 a mixed economy. If you notice, I gave you advantages of capitalism and disadvantages,

35:59 same for socialism, but I skipped that for a mixed economy and that's going to be your assignment.

36:05 I want you to read about and write five advantages and five disadvantages of a mixed economy.

36:13 And so that brings us to the end of this lesson. Thank you for watching. I'm Cornelius,

36:19 till the next class.