Economy and Systems

An economic system produces and distributes goods and services by using natural, human and manufactured resources. It works just like an environmental system: it is made up of certain components, require inputs (resources) and produces outputs (good and services).

Economic systems seek to satisfy people's needs and wants in the most efficient and effective way. The success or failure of an economic system is based on how efficiently and effectively it carries out its activities. An economic system is also in charge of the distribution of wealth.

As in any system, there needs to be an input of resources. In an economic system, these resources are known as capital, and it is used to produce goods and services.

Capital can be divided into three categories:

1. Natural Capital
2. Human Capital
3. Manufactured Capital

Natural capital and natural income include natural resources that have value. These are resources that support life. Examples include trees, soil, water, living organisms, etc. Natural capital also includes processes such as photosynthesis and biogeochemical cycles, because these help promote life.

Natural capital in economic systems is extremely important since natural capital yields natural income. In fact, the World Bank calculates a country's wealth by also considering the way it administers its natural resources, along with the other criteria.

Natural resources can be classified into 4 categories by their availability or depending on how long it takes for them to be renewed.

1. Renewable
   
2. Non-renewable
   
3. Replenishable
4. Recyclable

It is possible for a certain resource to fall into more that one category, and there may be ideas that differ depending on each person's point of view.

What is a system?

A system is a set of components that function and interact in a certain way. Some key components of a system are:

• Inputs: These enter the system. (e.g. matter, energy)
  
• Outputs: These flow out of the system.
  
• Flows: These are materials passing through the system.
  
• Storages: These are where something, such as energy, is held in a certain part of the system.
  
• Sources: As its name states, it is where an input comes from (e.g. the sun is a source of energy)
  
• Sinks: This is where the output goes.
  

Studying the environment as a system helps us better understand the relationships between the different components and the causes and effects within that system.

Types of systems include:

• Open system: Both matter and energy are exchanged.
  
• Closed system: Energy is exchanged, but matter is not.
  
• Isolated system: Neither matter or energy are exchanged.
  

A common characteristic of all systems is synergy. It means that "the whole is greater than the sum of its parts." This occurs when two or more components or processes interact in such a way that the result is greater than the individual effect. This can be seen in things as simple as table salt and in complex systems such as the digestive or circulatory systems.