The basic economic problem is scarcity because resources are scarce but wants are unlimited. That is why we have to make decision and this involves opportunity cost. Opportunity cost is the best alternative value that has to be forgone to satisfy a particular need. To allocate resources, there are 2 types of economy systems; ie. market economy system and command economy system.

Market economy system is a decentralised system where decision making is by the buyers and the sellers. There are large number of buyers and sellers that no single buyer or seller can influence the market. There is freedom and also competition because economic decision is based on self-interest. Because of freedom, there are large variety of goods in the market. The resource allocation is by the pricing system, meaning price is determined by buyers and sellers.

The advantages of having market economy system are many. There is...