An economy is defined as a place or a country where resources are managed by a government to bring about maximum benefits for the entire society.
Caribbean countries are characterized as developing economies. Developing economies are described as those with their average income earned, rate of literacy and health services lower than industrialized/developed nations. They are so characterized because they have a high potential for growth and achieving the status of developed countries.
Early Caribbean economies dated from the Taino and Kalinago Indians who lived in simple villages. These villages were ruled by a leader who organized all economic activities. They hunted, fished and grew crops to provide the means of survival for their village. Present Caribbean economies are much more sophisticated. For most Caribbean countries, it is consumer demand that drives the production and distribution of goods and services.
Government manages the economy. They set the laws that govern households and businesses. They provide the necessary services (road, water, transportation, communication etc,) so that businesses may operate efficiently. Households and businesses must in turn pay their taxes.
Households consume the goods and services provided by firms. Households are known as consumers.
Firms produce commodities/goods and services that satisfy needs and wants for its market. They are the producers in an economy. They obtain and maintain markets through consistent advertising and sales promotion.
Business enterprises are legal entities operating in an economy to provide goods and services at a profit. Profits are the excess of earnings/revenue over its costs. Profits are an incentive for businesses to continue operating. Businesses will close down if they are making losses. This is an excess of cost over revenue. If costs are greater than expenses then a business entity is making a loss.
Whether man lives in a simple economy or in a more sophisticated one he must survive. He is seen as an economic animal as in order for survival he must be involved in economic activities such as production, consumption and exchange. He either produces the good he consumes or he is involved with exchange through barter or money purchases. If he produces his own goods and provides his own services, he is involved with direct production. However, if he obtains goods by bartering or by purchasing them he is involved in indirect production
Barter is the exchange of goods or services for other good or services. This system is rarely practiced in modern economies, but still occurs. For example, a Caribbean Government agreeing to exchange its country’s bauxite for cars manufactured by an industrialized country. In early economies individuals had to barter goods and services to obtain those commodities that they did not produce for themselves. Money did not exist and so barter was the only means of exchange.
There were several problems with the barter system:
1. A common measure of value did not exist. Therefore some persons felt cheated, as what is being exchanged is more valuable than what is received.
2. A double coincidence of wants may not exist. The wants of both persons wishing to trade must coincide with what is being offered by each other. That is, an individual may wish to exchange what he produces (e.g. animal skins for another commodity such as clay pots). However, if the individual who makes the clay pots does not want skins then no trade will occur. This individual will need to find someone with clay pots who wishes to obtain skins.
Specialization is defined as the division of labour. This is used in production processes in both early and modern economies to complete tasks more efficiently. In the Taino Indian village, the men would hunt and the women would tend crops. This is an example of simple specialization. Complex specialization involves the breaking down of tasks into minute tasks, and assigning each task to an individual or a unit group. For example, in a garment factory, a single dress will be sewn by several persons, one person will sew the sleeves, and another will sew the collar. Simple specialization in early economies resulted in the barter system, as man needed to trade to obtain those goods and that he did not produce for himself.
The advantages of specialization include improved quality of output, and shorter production time, because of the repletion of a single task. This results in increased efficiency, and reduced costs. However, repletion of a small task may become boring and de-motivate employees to work efficiently. Therefore quality may decline as well as output.