The Nature of Firms in Different Economic Systems Essay

The Nature of Firms in Different Economic Systems - Essay Example d by the market share (or market power) it possesses, number of other sellers in the industry, nature of market demand faced by the firm, price mechanism followed and the target market served (Plesch and Blakenburg, 2008). Variation in some or all of these factors creates different types of firms. Some of these factors are internal to the firm while others are related to the external environment of the firm. Customer purchase behaviour (or customer preferences) is the chief external factor that affects the operations of the firm. The pattern of exchange of goods and services and transaction of knowledge (referring to symmetry or asymmetry of information in the market structure) also determines the types of firms in different markets. It influences the production pattern of the firm and also reflects the kind of profit enjoyed by the firm. Nature of firms in different types of economic systems Some economists distinguish each type of economic system from one another according to the c oncept of economic surplus. While various types of economic systems have been prevailing in different periods of time in history, only a small number of economic systems have played significant role in the shaping up of productive units in the economy. In the current global economy, three different market systems are can be distinguished from one another (Plesch and Blakenburg, 2007). Since the characteristics of each of these economies vary, it indicates that the type of firm that operates in these economies would not be the same. The types of economic structures have been elaborated below with reference to the type of firm that can operate in these economic systems. The first kind of economic system is market economy. In this type of economy, the market acts as the prime economic thrust.... This essay offers comprehensive analysis of varying role of firms in different economic systems. The nature of firm is highly integrated with the nature of the economy in which the firm operates Different forces might lead to resource allocation in an economy. Depending on factors such as availability and allocation of raw materials, changing preferences of customers, culture and tradition of the economy and basic infrastructure; the missions and short and long term goals of the firms are decided. The economic system of a nation refers to the system of allocating the resource endowment of the country among the different activities taking place within the country. In this process, resources are allocated to firms for making productive activities. These resources act as the factors of production for the firm. In the current world economy, three different types of economic systems can be identified. These are command economy, market economy and mixed economy The nature of firms is not a constant attribute . It varies depending on certain internal as well as certain external factors. Economic system can run without intervention from any other individual or agency. Supply in the economy is adjusted to the demand created by consumers, or in other words, production is adjusted consumption. The process in which a firm operates in the economy, according to scholars, is elastic and automatic . All firms in an economic system are coordinated by the price mechanism. Thus, they are integrated with the economic structure of the country