Table of contentsTypes of economic systemPrice theoryUnderstanding supply and demand and the relationship with price theoryTransaction costConcepts of externalitiesLearning and reflectionThis article focuses on the importance of the functioning of the system economic of what could also be called as Institutional Structure of Production. Different concepts such as free market theory, the crude theorem, transaction costs and its fundamentals, externalities linked to production and negotiations. Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get an original essayTypes of Economic SystemThere are four types of economic systems; traditional, managed, market and mixed economies. A traditional economic system focuses exclusively on goods and services directly linked to its beliefs and traditions. A managed economic system is characterized by dominant centralized power. A market economic system relies on free markets and does not allow any form of government involvement. Finally, a mixed economic system is any kind of mixture of a market and a managed economic system. [1].Price TheoryPrice theory is an economic theory that states that the price of any specific good or service is based on the relationship between supply and demand. Price theory posits that the point at which the benefit obtained from those demanding the entity matches the seller's marginal costs is the most optimal market price for the good or service. Understanding Supply and Demand and the Relationship to Price TheorySupply refers to the amount of products or services that the market can supply. This includes tangible goods, such as automobiles, or intangible goods, such as the ability to schedule an appointment with a qualified service provider. In each case, the available supply is inherently limited. There are only a certain number of automobiles available, and only a certain number of appointments available, at any given time. Demand applies to the market's desire for the item, whether tangible or intangible. At any given time, there are also only a limited number of potential consumers. Demand may fluctuate depending on various factors, such as if an improved version of a product is available or if a service is no longer needed. Demand can also be influenced by the perceived value of an item, or its affordability, by the consumer market. To achieve equilibrium, the goal is to locate a price level that allows the number of available items, called supply, to be reasonably covered by potential customers. If the price is too high, customers may avoid the good or service, leading to oversupply. On the other hand, if the price is too low, demand can greatly exceed the available supply. Economists use price theory to find the selling price that brings supply and demand as close to equilibrium as possible. Transaction Costs Transaction costs are expenses incurred when buying or selling a good or service. Transaction costs represent the labor required to bring a good or service to market, giving rise to entire industries dedicated to facilitating trade. From a financial perspective, transaction costs include broker commissions and spreads, which are the differences between the price paid by the broker for a security and the price paid by the buyer. Concepts of externalities Voluntary exchange will only take place if both parties believe they are in a better situation, this sometimes causes externalities. Now, what is externality? THEexternalities are the cost or benefits, not transmitted by prices to parties other than those involved in the transaction when they are beneficial, they are positive externalities and the rest if they are non-beneficial or costly, they are negative externalities. Let's talk about negative externalities first. Let's assume a practical situation. Imagine a corn farmer and consider the things he needs to support the growth of his corns, this could be things like fertilizer, water, sunlight, etc. Suppose a river flows towards its crop side and some of its fertilizers get drowned and flow into the water body, this often results in the death of large fish, which in turn impacts fishermen , recreational and landowners experience negative externalities, because for the fisherman the fish are the source of income and as they are killed they will have a negative impact on their economic situation, not just him, the consumer The final outcome will also be faced with the effects of negative externalities. These externalities can be broadly classified into three categories: Taxation: We can impose a tax on production, which will reduce the quantity of goods produced, which will automatically reduce negative externalities. However, the difficulty is to control how much production is being achieved and if high production is not being achieved then why the supply is constant and whether people are buying at high prices. Regulations Technology Specific Methods – This is where the government requires producers to use certain technologies to reduce pollution or emissions. The advantage is that monitoring costs are quite low. You don't need to have someone on site to monitor the amount of emissions until this technology works and is there. The introduction of the latest technologies has somewhat reduced negative externalities. For example, the use of electronic precipitators in place of manual ash collectors or hoppers has significantly reduced the level of pollution and ash content in the atmosphere, but again the underlying problem is that this reduces the chances of finding innovative ways the company can use to further reduce pollution. pollution content because there would be no immediate need. Restrict the amount of goods or pollution produced - The advantage of this is of course that businesses now have the reason to find innovative ways to reduce pollution, but the disadvantages are that the cost of monitoring is quite high. Thus, the best way to counter negative externalities is the property rights solution. Property Right Solution - This proposes that if property is globally defined, divisible and defensible and the costs of negation or transaction are low, simply by assigning property right we can overcome externalities. The three characteristics you need to have to have fully functional property rights solutions. Next comes the concept of 3D's Well Defined - What is the object that the owner has rights to. How the owner exercises his rights. Divisible – Are these rights separable? And whether they can be exchanged or not. Defendable – Are these rights enforceable? Are these rights recognized either by custom, by the community, or by a government agent? Let's assign property rights in the example above. Suppose the farmer does not change his behavior and continues to dump fertilizer into the river, but this time the fisherman can now trade with the farmer to reduce the amount of fertilizer he deposits on the field. This would reduce the.