Economic System

Meaning of Economic System

An economic system is a mechanism with the help of which the government’s plan and allocate accessible services, resources, and commodities across the country. Economic systems manage elements of production, combining wealth, labor, physical resources, and businesspeople. An economic system incorporates many companies, agencies, objects, models, as well as for deciding procedures.

Types of Economic System

  • Capitalist Economy- In a capitalist system the products manufactured are divided among people not according to what people want but on the foundation of Purchasing Power—which is the ability to buy products and services. Which means an individual needs to have the money with him to buy the goods and services. The Low-cost housing for the underprivileged is much required but will not include as demand in the market because the needy do not have the buying power to back the demand. Therefore, the commodity will not be manufactured and provided as per market forces.
  • Socialist Economy- This economy system acknowledges the three inquiries in a different way. In a socialist society, the government determines what products are to be manufactured in accordance with the requirements of society. It is believed that the government understands what is appropriate for the citizen of the country, therefore, the passions of individual buyers are not given much attention. The government concludes how products are to be created and how the product should be disposed of. In principle, sharing under socialism is assumed to be based on what an individual need and not what they can buy. A socialist system does not have a separate estate because everything is controlled by the government.
  • Mixed Economic – Mixed systems have characteristics of both the command and market economic systems. For this purpose, the mixed economic systems are also called as dual economic systems. However, there is no sincere method to determine a mixed system, sometimes the word represents a market system beneath the strict administrative control in certain sections of the economy.

Economic System

(A)ECONOMIC SYSTEM · Economic system is defined as an arrangement by which the central problems of an economy are solved. · Central problem of an economy includes basic problems of the economy like: i. What to produce? ii. How to produce? iii. For whom to produce?
(1) CAPITALIST ECONOMY · It is an economic system based on private property and private profit. · It is also called laissez-faire or free market economy.
(2) SOCIALIST ECONOMY · It is an economic system based on public ownership of property and social welfare. · Under this economic system, Economic decisions are taken by Government.
(3) MIXED ECONOMY · It is an economy having elements of both capitalist and socialist economies. · Ownership of property is both by the private and public sector.
(1)OWNERSHIP OF PROPERTY Private ownership Public ownership Both public and private ownership
(2)PRICE DETERMINATION Prices are determined by the market forces of demand and supply Prices are determined by the central planning authority. Prices are determined by central planning authority and demand and supply.
(3)MOTIVE OF PRODUCTION Profit motive Social welfare The profit motive in the private sector and welfare motive in the public sector.
(4)ROLE OF GOVERNMENT No role Complete role Full role in the public sector and limited role in the private sector
(5) COMPETITION Exists No competition Exist only in the private sector
(6)DISTRIBUTION OF INCOME Very Unequal Quite Equal Considerable inequalities exist.
Q.1 What are the central problems of an economy?
a. What to produce?
b. How to produce?
c. For whom to produce?
d. All of the above  
Q.2- Which economic system is based on public ownership of property and social welfare?
a. Socialist economy
b. Capitalist economy
c. Mixed economy
d. None of the above  
Q.3- Mixed economy operates with motive of __________________
a. Profit.
b. Social Welfare
c. Both (a) and (b)
d. None of the above  
Q.4- In __________ type of economy there is no intervention of government.
a. Socialist economy
b. Capitalist economy
c. Mixed economy
d. None of the above  
Q.5- – In __________ type of economy there is no competition level.
a. Socialist economy
b. Capitalist economy
c. Mixed economy
d. None of the above  
1-d, 2-a, 3-c, 4-b, 5-a

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