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Economy as Social Institution

In this article, I am addressing questions i.e. “what is an economic institution? What are the functions of an economic institution?”

What is a social institution? 

The term ‘social institution’ refers to an interlinked system of roles and social norms aimed at achieving certain fundamental needs of people. In other words, it is an organized pattern of beliefs and behavior centered on some basic social needs.

What is an economic institution? 

The economy as a social institution refers to the system of production, distribution, and consumption of goods and services involving institutions, people, norms, and patterns of behavior. 

In other words, an economic system consists of a group of economic institutions through which a country makes use of scarce resources to satisfy human wants.

Moreover, the economic system varies from country to country and region to region within a country. 

Characteristics of the economy as a social institution 

The economy as a social institution:

  • ensures the maintenance of society by fulfilling the societal needs of different goods and services; 
  • organizes the system of production, distribution, and consumption of goods and services;
  • is the complex of interrelated institutions that help perform economic activities.  

Functions of the economy as a social institution 

The economy as a social institution: 

  • brings about a balance between supply and effective demand for goods and services in an optimal manner as far as possible. 
  • determines what goods and services to produce and in what quantities (food-grains or defense goods, fertilizer or clothing. 
  • allocates scarce resources among the industries producing goods and services. The allocation of scarce iron ores for automobiles or among washing machines are two examples in this regard. 
  • determines the best possible production methods for the full utilization of the available resources.  Some of the examples of these methods include mining of the coal, generation of electricity from a thermal power plant, etc. 
  • distributes the goods and services among mem­bers of the community on basis of equity. 

Noor Akber

I am a social activist and educationist. I write on politics, culture, education and economy.

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