Economic System

• Economics - Economics is the social science that analyzes the production, distribution
and consumption of goods & services.

• Economic System is the system of production, distribution and consumption

• An economic system is a mechanism (also defined as system or social institution) which

deals with the production, distribution and consumption of goods and services in a
particular society.

• The economic system is composed of people, institutions and their relationships. It

addresses the problems of economics like the allocation of the resources.

• Economic System : An organized way in which a state or nation allocates its

resources and distributes goods and services in the national community.

• Types:

1. Capitalism (Market Economy)

2. Socialism (Planned economy)

3. Mixed (Capitalism + Socialism)

• Capitalism 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.

OR

• Capitalism is the social system which now exists in most countries of the world. Under
this system, the means for producing and distributing goods (the land, factories,
technology, transport system etc) are owned by a small minority of people. We refer to
this group of people as the capitalist class. The majority of people must sell their ability
to work in return for a wage or salary (who we refer to as the working class.)

Capitalist System
(Adam Smith)
Mercantile • Centralized to Decentralized
system

System • Authoritarianism to
representative democracy
• Production Factors • Free flow of resources
in Government • People strive for self interest in
hands free market
• Export emphasis • Beneficial for society
• Based on Demand & Supply
Forces
• Monopoly to Competitiveness
• Self sufficiency to International
interdependence
• Producer interest to customer
power

• Benefits of Capitalism
 • In years 1000–1820 world economy grew six-fold, in years 1820–1998
world economy grew 50-fold

• Provides Choice to customers

• Provides valuable goods and services

• Capitalism actively rewards positive traits like hard work

• Similarly, it punishes negative traits such as laziness and theft

• Narrows the gap between common person and wealthy

• Provides opportunity to realize dreams and desires

• Capitalist societies usually do not have large black markets

• Build on democracy

• Social Good

• Major limitations/ Criticism:

• Downfall of work ethics

• Free Market + Self Interest

• Accumulation of wealth

• Encourages inequality in a society

• Business lobbying with government

• Monopolistic tendency

• Human resource exploitation

• Results in great disparities between income of people owning the capital

resources and others
• 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. Common ownership doesn't mean decisions are made
collectively, however. Instead, individuals in positions of authority make decisions in the
name of the collective group.

• Socialists argue that socialism would allow for wealth to be distributed based on how
much one contributes to society, as opposed to how much capital one holds.

• A primary goal of socialism is social equality and a distribution of Wealth based

on one’s contribution to society and an economic arrangement that would serve the
interests of society as a whole.

• Socialism as we know it today, most commonly refers to "market socialism," which

involves individual market exchanges organized by collective planning.

Features of Socialism;

• Social Ownership of means of production

• Existance of public sector

• Decisive role of Economic Planning

• Production guided by Social Benefits

• Abolition of exploitation of labour

Benefits of Socialism
 • Better salaries

• Stable Environment

• Eliminates poverty

• Better Products

• Fulfills survival need

• Opportunity for citizens to explore non-economically-productive pursuits,

Benefits of Socialism

i. Better salaries

ii. Stable Environment

iii. Eliminates poverty

iv. Better Products

v. Fulfills survival need

vi. Opportunity for citizens to explore non-economically-productive pursuits.

Mixed Economy

• Any economy in which private corporate enterprises and public sector enterprises exist
side-by-side, and decisions taken through market mechanism are supplemented by
some form of partial planning, is to be described as a mixed economy.

• This system overcomes the disadvantages of

both the market and planned economic systems.

 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 government.

• Monopolies may be existing but under close supervision of the

government.

Advantages

• Producers and consumer have sovereignty to choose what to produce

and what to consume but production and consumption of harmful goods
and services may be stopped by the government.

• As compared to Market economy, a mixed economy may have less

income inequality due to the role played by the government.

• A mixed economy represents an achievable balance between individual

initiative and social goals.