An Economic System
An Economic System is a system that involves
production, distribution and consumption
of goods and services between the entities in a
It can either be completely owned and operated
either by Manufacturers & Industrialists or
by Government or by both with combining their
Capitalist Economy System:
Businesses are managed and owned by corporate &
Limited role of Government.
There are free private enterprises.
Price of goods & services are decided by market
mechanism on the basis of demand & supply.
Although Profit motive is there but supremacy of
consumers also exists.
Merits of Capitalism:
Gives encouragement to business.
Higher rate of Capital formation.
Optimum utilization of resources.
It is a justified system as competent entrepreneurs
Demerits of Capitalism:
Inequality in income.
This income inequality gives rise to class
Problem of unemployment.
Lack of welfare.
Emergence of monopoly.
Socialist Economy System:
Socialist Economy is also referred as Centrally Governed
Institutions are owned by Government on behalf of
Govt. decides about establishment, location,
production, distribution and prices of goods &
All activities are carried out for welfare of the society.
Freedom to choose any occupation is restricted.
Merits of Socialism:
There is Social justice for all segments of society.
No class conflicts because of equitable
Problem of unemployment is solved.
Better utilization of resources can be done by
putting them to appropriate use.
Demerits of Socialism:
Biggest problem of Redtapism(corruption).
No encouragement to private owners for their own
Concentration of economic power remains in hands of
politicians & govt. officials.
Social welfare is only a myth as deserving candidates are
Mixed Economy System:
Compromise between Capitalist & socialist Economic
Co-existence of public & private enterprises. Works on
platform of PPP.
For establishing a private enterprise , entrepreneurs are
required to obtain certain licenses or No Objection
Certificate(NOC) form govt. authorities.
Both the Profit motive and Social Welfare Motive are
Merits of Mixed Economic System:
Concept of social justice works.
Competition between Public sectors & Private
sectors which ultimately leads to benefit to
Proper Employment opportunities are provided
to the population.
Equitable distribution of income is there.
Demerits of Mixed Economic System:
However equal income distribution is emphasized
still some big parties enjoy economic power.
Political parties have a big influence over
bureaucrats & govt. officials.
Sometimes the non deserving people enjoys the
benefits in the name of nationalism.