Study Material of Management Students

1. Business Environment
UNIT 2
ECONOMIC SYSTEMS
PROF (DR) KANCHAN KUMARI
FACULTY OF INTERNATIONAL BUSINESS & MANAGEMENT

2. Economic Systems: Capitalism
 Capitalism is often thought of as an economic system in which private actors own
and control property in accord with their interests, and demand and supply
freely set prices in markets in a way that can serve the best interests of society.
The essential feature of capitalism is the motive to make a profit.
 Capitalism or capitalist economy is referred to as the economic system where the
factors of production such as capital goods, labour, natural resources, and
entrepreneurship are controlled and regulated by private businesses.
 In a capitalist economy, the production of all the goods and services is dependent on
the demand and supply in the market that is also known as a market economy. It is
different from the central planning system that is also known as a command economy
or a planned economy.

3. Economic Systems: Capitalism
 The main characteristic of a capitalist economy iswork with the motive of earning
profit. The capitalist economy is also characterised by the presence of free markets
and lack of participation by the government in regulating the business.
 The origin of capitalism can be traced back to 18th century England that was
undergoing the industrial revolution at that time. As there is no government
intervention in this type of economy, it is also known as a free market economy

4. Example:
 There is no direct government intervention other than to control monopolistic practices in the economy. As we said earlier a capitalist
economy is the most predominant in the current global economy. USA, UK, Germany, Japan, Singapore all are classic examples of
capitalist economies.
 Examples of Capitalist Economies
1. Hong Kong
2. United Arab Emirates
3. Singapore
4. New Zealand
5. Australia
6. Canada
7. Switzerland
8. United Kingdom
9. United States
10. Ireland

5. Advantages of Capitalist Economy
1. There is more efficiency in the capitalist economy as the products are produced
according to the demand of the consumers.
2. There is less intervention from the government or bureaucratic interference.
3. There is better scope for innovation as companies look to obtain a major part of
the market with their offerings.
4. It discourages any form of discrimination so that the trade can take place between
two parties without any barriers.

6. Disadvantages of Capitalist Economy
1. Capitalism leads to inequalities in income.
2. In capitalism, firms can get monopoly over workers and consumers.
3. A high profit-earning motive of a capitalist economy is to use resources in such a
way that it leads to environmental problems by destroying the natural balance.

7. Economic Systems: Socialism
 Socialism is, broadly speaking, a political and economic system in which
property and the means of production are owned in common, typically
controlled by the state or government. Socialism is based on the idea that
common or public ownership of resources and means of production leads to a
more equal society.
 Socialism is a system in which every person in the community has an equal share
of the various elements of production, distribution, and exchange of resources.
Such a form of ownership is granted through a democratic system of governance.
Socialism has also been demonstrated through a cooperative system in which
each member of the society owns a share of communal resources.

8. Economic Systems: Socialism
 The rule of engagement in a socialistic system is that each person receives and
contributes according to his ability. For this reason, individuals in a socialistic
society tend to work very hard. Members of the community receive a share of the
national pie once a percentage is taken off for the purpose of communal
development. The areas into which resources are channeled include defense,
education, and transportation.

9. Types of Socialism
 1. Democratic socialism
 In democratic socialism, factors of production are under the management of an elected administration. Vital goods and services such as energy, housing, and transit
are distributed through centralized planning, while a free market system is used to distribute consumer products.
 2. Revolutionary socialism
 The running philosophy of revolutionary socialism is that a socialistic system can’t emerge while capitalism is still in play. Revolutionaries believe that the road to a
purely socialistic system requires a lot of struggle. In such a system, the factors of production are owned and run by workers through a well-developed and
centralized structure.
 3. Libertarian socialism
 Libertarian socialism works on the assumption that people are always rational, self-determining, and autonomous. If capitalism is taken away, people naturally turn
to a socialistic system because it is able to meet their needs.
 4. Market socialism
 Under market socialism, the production process is under the control of ordinary workers. The workers decide how resources should be distributed. The workers sell
off what is in excess or give it out to members of the society, who then distribute resources based on a free market system.
 5. Green socialism
 Green socialism is protective of natural resources. Large corporations in a green socialistic society are owned and run by the public. In addition, green socialism
promotes the development and use of public transit, as well as the processing and sale of locally grown food. The production process is focused on ensuring that
every member of the community has enough access to basic goods. Moreover, the public is guaranteed a sustainable wage

10. Advantages of Socialism
 1. Absence of exploitation-A socialistic system ensures that no worker is
exploited. How? Well, each of the workers in the community has a say on how the
resources are managed, and each person receives and contributes based on an
individual’s potential.
 2. Rejection of discrimination- The system disapproves discrimination, and each
person does what he is good at or what he enjoys best. If there are jobs that
should be done and there is no one to perform them, a higher remuneration is
provided. Natural resources are protected for posterity.

11. Disadvantages of Socialism
 1. Dependence on cooperative pooling-the greatest disadvantage of a
socialistic system is its reliance on cooperative pooling to get things done. In
addition, people who are competitive in the community are viewed in a negative
light. The society expects cooperation and not competitiveness. According to
socialism, competitive individuals tend to find ways to cause social unrest for
personal gain.
 2. Lack of competitiveness and innovation-Socialism does not reward
entrepreneurial ventures or competitiveness. Consequently, a socialistic system
does not encourage innovation as much as capitalism.

12. Mixed Economy
 A mixed economic system is a system that combines aspects of both capitalism and
socialism. A mixed economic system protects private property and allows a level of
economic freedom in the use of capital, but also allows for governments to interfere in
economic activities in order to achieve social aims.
 Example: A mixed economy consists of both private and government/state-owned
entities that share control of owning, making, selling, and exchanging good in the
country. Two examples of mixed economies are the U.S. and France. A mixed
economy moniters the power of monopolies.
 Under a Mixed Economy, the private and public sectors coexist. Economic activity is
directed by the government toward particular socially significant sectors of the
Economy, and the balance is determined by the operation of the pricing mechanism.

13. Mixed Economy-Public Sector & Private
Sector
 In a mixed economy, both public and private sectors own and produce goods
and services. While private players participate in the production of goods and
services, the government makes major decisions for the economy keeping social
welfare in mind. This keeps a check on economic disparity.

14. Features of a Mixed Economy
 Coexistence of all the Sectors In the Mixed Mixed Economy system, all three sectors exist
together, that is the private sector, public sector and joint sector. The government and private
companies together hold the responsibilities of the respective division. 51% of the total ownership
belongs to the state itself.
 Cooperative Sector According to the Mixed mixed Economy definition, a cooperative sector exists
in a Mixed Mixed Economy. The significance of this sector is vital. In Mixed Mixed Economy
countries, the government provides necessary items and financial aids to the areas involved in
cooperative societies like warehousing, dairy industry and more.
 Freedom and Control To be precise, in a Mixed Mixed Economy, we denote that the individuals
have complete liberty to manufacture goods and items and choose property and occupation
according to their choice. The regulating body maintains control to avoid all sorts of
discrimination and monopolistic issues
 Economic Planning In a Mixed mixed Economy, the central planning authority exists. All the
sectors of the firm follow this rule and plan to pursue their goals. The plan is solely observed with
the motive to attain national Economic growth.
 Social Welfare The significant look out of a Mixed mixed Economy is the social welfare of society.
It focuses on eliminating the unemployment issues from the country.

15. THANK YOU !
 Dr. KANCHAN KUMARI