DEFINATION• The Economic System refers to the mechanismthat deals with production, distribution &consumption of goods & services including thecombination of the various institutions, agencies,consumers, entities that comprise the economicstructure of a given society or community.• It deals mainly with the allocation & scarcity ofresources.• It also includes how these various agencies andinstitutions are linked to one another, how
Problems faced by all theeconomiesScarcity forces allcountries to answerthese 3 questionsScarcity leads toconflict
Different Countries UseDifferent Systems ToAnswer These Questions…….
CAPITALISTICECONOMY• Capitalism is an economic system in which the means ofproduction are privately owned and operated for profit,usually in competitive markets.• In other words; an economic system in which investment inand ownership of the means of production, distribution, andexchange of wealth is made and maintained chiefly by privateindividuals or corporations.• Capitalism is the social system which now exists in mostcountries of the world. Under this system, the means forproducing and distributing goods (the land, factories,technology, transport system etc.) are owned by a smallminority of people. We refer to this group of people as thecapitalist class. The majority of people must sell their abilityto work in return for a wage or salary (who we refer to as the
CHARACTERISTICS• Characterized by Market economy• Private ownership of means of production• Most of the total output`s utilized forpersonal consumption• Consumer economy• Profit oriented• Concept of Laissez-faire which assertsthat the government should not intervene inproperty rights and the economy as awhole.
• Goals: Profit for individuals, people aremotivated by economic rewards• Methods: Competition, supply and demand• Political System: Democracy/Parties• Examples:USASwitzerland Canada Australia Chile Argentina South
SOCIALISTICECONOMY• Is the form of economy where the decisions related to theproduction, economic development lies with the state.Government`s role`s important. Role of the private sectorsis nil.• A socialist economy is a system of production where goodsand services are produced directly for use , in contrast to acapitalist economic system, where goods and services areproduced to generate profit.• Socialists argue that socialism would allow for wealth to bedistributed based on how much one contributes to society,as opposed to how much capital one holds.
CHARACTERISTICS• It`s an extreme form of economywhere government plays a pivotal role.Private sectors have no importantrole to play.• The decisions related to theproduction & distribution of goodslies with the state.• Production`s guided by the objectiveof social welfare. Private profit`s notemphasized.
• Apart from labour, all means of production`reowned by the state.• There exist markets dealing with commoditieswhere people`ve complete freedom to spend theirdisposable income on goods & services.• Cooperation: workers work to fulfill a commongoal.• Decisions pertaining to consumption pattern,quantities of various commodities, distributionpattern`re taken by the government.
• Collectivism• Equality: equal opportunities toproduce goods, share wealth.• Central planning: a group of expertsstudy the economy & formulate somefuturistic plans for the country.
• Goals: Equal distribution of income• Political System: Totalitarian• Examples:Cuba North Korea China Former Soviet Union
BASIS OFDIFFERENCECAPITALISTECONOMYSOCIALISTECONOMYResourcesOwnershipPrivately owned State ownedFoundation belief competition brings out thebest in peoplecooperation is the bestway for people tocoexistEarning of wealth everyone works for his ownwealtheveryone works forwealth which isdistributed equally toeveryoneGovt. interference Only in situations wherelaws have been brokenFully involvedEmployeemotivationHighly motivated on accountof proportional benefitsRarely motivated asperformance is notrewardedMerit Perception of bettereconomic growth because ofcompetitionEqual distribution ofincome results in welfareof allDemerits Few individuals/groupsattain powers, rest areHard work is notrewarded, lazy
MIXED ECONOMY• Mixed economy as the namesuggests, is an economy where all theactivities related to production andother activities are carried out byparticipation of both government andprivate enterprises.
CHARACTERISTICS• Means of production`re owned bythe govt. as well as the private firms.• Open economy; market dominates theeconomic activities.• Motives: profit seeking &accumulation of capital• Consumers play a pivotal role• Planning board follows Indicativeplanning
• Mixed economy is half way house. It isnot helpful in achieving optimal use ofnational resources.• The mixed economy suffers from thedrawbacks of both the capitalism andthe socialism.
ADVANTAGES• Since mixed economy involves both governmentand private enterprises, it has the advantage oftaking the benefits of capitalist nature of privatecompanies and socialist nature of government.• There is less inequality of income because theintent of government is to have a balancedeconomic growth of an economy.• Mixed economy allows individuals to run theirbusiness and make profits but at the same time itplaces some responsibility on these companies byinducing them to contribute towards the welfareof society.
DISADVANTAGES• Since welfare of society is important in a mixedeconomy ,it leads to lower than optimum use of theresources because government mobilize s theresources towards the production of those goodsand services which are beneficial for the societyas a whole rather than producing those goods andservices which in economic terms are morebeneficial for an economy.• Under a mixed economy, private enterprises haveto face a lot of difficulties because of variousgovernment loopholes like favoritism , which isprevalent in mixed economy.
• Govt. influences the economythrough it`s various fiscal & monetarymeasures.
India: As a Mixed Economy• Post Independence (1947), PanditJawaharlal Nehru proposed the idea of“Mixed Economy”.• Initial motive: to reduce social andeconomic stress.• Priority on “Economic growth with socialjustice”.• Commanding role of state in industrialproduction and import substitutionstrategy.• Role in agriculture limited to infrastructuredevelopment, irrigation and trade.
• Goals: Equal distribution of income• Methods: High Taxes• Examples:England Germany SwedenEgyptFranceItaly Hungary Mexico