Economic System

EconomicsEconomics is the social science that analyses the production, distribution and consumption of goods & services.

Economic SystemEconomic system is the system of production, distribution and consumption.An Economic system is a mechanism, which deals with production, distribution and consumption of goods and services in a particular society.

Economic System is an Organized way in which a state or nation allocates its resources and distributes goods and services in the national community.

TYPES OF ECONOMIC SYSTEM

Capitalism (MARKET ECONOMY) Socialism (PLANNED ECONOMY Mixed Economy (CAPITALISM + SOCIALISM)

CAPITALISMCapitalism is an economic system in which the means of production are privately owned and operated for profit, usually in competitive markets. In other words; An Economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations.FEATURES

Right to own property. Profit motive. Private ownership of means of production. Consumer’s Sovereignty. Economic Freedom. Social division of people. Price Mechanism

Advantages and DisadvantagesAdvantages

Reduction in cost of production due to efficient control. Efficient control of production process. Improved Quality of goods. Consumer’s Choice is given full weight. Varieties of products.

Disadvantages

Inequality in the distribution of National Wealth. Fluctuations in the level of employment. Class conflicts. Waste of Talents. Heavy expenses on publicity result into increase in cost and price of

the commodity.

SOCIALISM

In Socialist Economic system, the production is owned and managed by the state. Ownership of means of production is not allowed. In Socialism, Economic activities are carried on mainly for social gains and personal interest is of less significance. Economic activities are planned with the motive of social benefit by a central planning authority.Socialism is a term applied to an economic system in which property is held in common and not individually, and relationships are governed by a political hierarchy.Primary goal of Socialism is social equality and distribution of Wealth based on one’s contribution to society and an economic arrangement that would serve the interests of society as a whole.Features of Socialism

Social Ownership of means of production. Existence of public sector. Decisive role of Economic Planning. Production guided by Social Benefits. Absence of Competition. No Economic freedom to the people. Economic activities are planned by the Central Planning Authority.

Advantages and DisadvantagesAdvantagesGreater Efficiency.Greater Welfare.Absence of monopolistic practises.Absence of Business Fluctuations.Economic Growth.Eliminates Poverty

Disadvantages

Elimination of Individualism

Consumers suffer.Economic EqualityNon-existence of economic and political freedom.Non-Existence of Competition

Difference between Capitalist Economy and Socialist Economy

MIXED ECONOMY

An Economic System that features characteristics of both Capitalism and Socialism. A Mixed Economic system allows a level of private economic

freedom in the use of capital, but also allows for governments to interfere in Economic activities in order to achieve social aims.This system overcomes the disadvantages of both Capitalism and Socialism.

Features

Resources are owned both by the government as well as private individuals. I.e. Co-existence of both public sector and private sector.

Market forces prevail but are closely monitored by the govt. Monopolies may be existing but under close supervision of the govt.

Advantages and DisadvantagesAdvantages

Producers and Consumers have sovereignty. Adequate Incentive to work hard. Interest of the people is well served. Resources may be properly utilized. Rapid Development is possible.

DisadvantagesConcentration of Wealth in few hands.Existence of anti-social activity.Wastage of resources