Question

How businesses are affected by the economic systems in which they operate. Provide an example to illustrate your response.

Answer 1

Businesses are immensely affected by the economic system under which they operate. In a free-market economic system, businesses have complete freedom to make decisions with respect to resource allocation, production, distribution, sales, hiring, etc. However, in a command and control economic system, firms face strong regulations such as licensing, quota, etc. and they are hardly free to make decisions with respect to resource allocation, production, distribution, sales, hiring, etc. For example, in the USA, the economic system is relative free and firms face fewer restrictions with respect to business decisions. On the other hand, in China, firms face heavy regulations and government interventions and this reduces their decision-making abilities.