subject business environment

1. 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.

2. • Economic System : An organized way in which a state or nation
allocates its resources and distributes goods and services in the
national community.

3. • Types:
– Capitalism (Market Economy)
– Socialism (Planned economy)
– Mixed (Capitalism + Socialism)

4. Capitalism

5. Capitalism (Free market economy) –
It is an economic system in which
private individuals own all the material
means of production & all economic
activities are undertaken for purpose of
profit.

6. • 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.)

7. • ADAM SMITH called “the obvious
and simple system of natural
liberty” (Book: Wealth of Nations).
Subject to certain restrictions, individuals
(alone or with others) are free to decide
where to invest, what to produce or sell,
and what prices to charge. There is no
natural limit to the range of their efforts in
terms of assets, sales, and profits; or the
number of customers, employees, and
investors; or whether they operate in
local, regional, national, or international
markets.

8. Features of capitalism -
- Right to private property.
- Freedom of enterprise.
- Freedom of choice for consumers.
- Profit motive.
- Competition.
- Price mechanism on market forces.
- Less role of government.

9. Mercantile System
•Production Factors in
Government hands
•Export emphasis
Capitalist System
(Adam Smith)
•Centralized to Decentralized system
•Authoritarianism to representative
democracy
•Free flow of resources
•People strive for self interest in free
market
•Beneficial for society
•Based on Demand & Supply Forces
•Monopoly to Competitiveness
•Self sufficiency to International
interdependence
•Producer interest to customer power

10. • 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

11. • Provides opportunity to realize dreams and
desires
• Capitalist societies usually do not have large
black markets
• Build on democracy
• Social Good
• Efficient utilization of resources.
• Rapid economic growth.
• Innovation.

12. • Major limitations/ Criticism:
• Downfall of work ethics
• 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
• Loss of human values
• Social discrimination

13. CAPITALISM VS SOCIALISM

14. CAPITALISM VS SOCIALISM

15. Socialism

16. Socialism (controlled economy or
communism) –
In this state owns & controls all means of
production. Decisions pertaining to
production, distribution are made through
central planning. The state dictates the
consumption pattern. It is based on the
principle: “from each according to his ability
to each according to his needs”.

17. Collective ownership and democratic control of the material means
of production by the workers and the people
•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.

18. • Difference between socialism and communism is that communists directly
oppose the concept of capitalism, an economic system in which production is
controlled by private interests. Socialists, on the other hand, believe
socialism can exist within a capitalist society.

19. • Features of Socialism;
• Social Ownership of means of production
• Existence of public sector
• Decisive role of Economic Planning
• Production guided by Social Benefits
• Abolition of exploitation of labour
• Absence of competition

20. • Benefits of Socialism
i. Better salaries
ii. Stable Environment
iii. Eliminates poverty
iv. Better Products
v. Opportunity for citizens to explore non-economically-
productive pursuits
vi. Higher economic growth.
vii. Absence of class struggle

21. • Criticism of Socialism
• Suppression of economic democracy
• Slow Technological advancements
• Minimize self management
• Lack of incentive & initiative
• Loss of occupational freedom.
• Inefficiency & low productivity.
• Corruption

22. COMPARISON

23. COMPARISON..

24. BASIS OF DIFFERENCE CAPITALIST ECONOMY SOCIALIST ECONOMY
Resources Ownership Privately owned State owned
Foundation belief competition brings out the best in
people
cooperation is the best way
for people to coexist
Earning of wealth everyone works for his own wealth everyone works for wealth
which is distributed equally to
everyone
Market Scenario Level playing field Protection to PSUs, Private
enterprises are permitted in
few businesses only
Govt. interference Only in situations where laws have
been broken
Fully involved
Employees motivation Highly motivated on account of
proportional benefits
Rarely motivated as
performance is not rewarded
Merit Perception of better economic
growth because of competition
Equal distribution of income
results in welfare of all
Demerit Few individuals/groups attain
powers, rest are exploited
Hard work is not rewarded,
lazy employees also enjoy
equal level of benefits

26. Mixed Economy
• “Mixed economy is that economy in which both government
and private individuals exercise economic control.”
• It is a golden mixture of capitalism and socialism.
• 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.

27. • This system overcomes the disadvantages of both the market
and planned economic systems.
• Provides a clear demarcation of the boundaries of public
sector and private sector so that the core sector and strategic
sectors are invariably in the public sector.
• The government intervenes to prevent undue concentration
of economic power, and monopolistic and restrictive trade
practices.
• The rights of the individual are respected and protected
subject only to the requirements of public law and order and
morality.

29. Features of Mixed Economy
•Co-existence of Private and Public Sector
•Personal Freedom
•Private Property is allowed
•Economic Planning
•Price Mechanism and Controlled Price
•Profit Motive and Social Welfare
•Check on Economic Inequalities
•Control of Monopoly Power

30. Examples of a Mixed Economy
One of the most powerful examples of a mixed economy is the U.S.
As detailed in the Constitution, the U.S. developed an economic system at its founding
that protected property rights and prevented overbearing government intervention in
business practices.
While the degree to which this has always been followed is perhaps up for debate, the
U.S. continues to stick to a mixed economy - and, according to an index - has an economic
freedom score of 75.7, which is the 17th freest in the 2018 index.
The U.S. employs a mixed economy by having a large private sector and free market that
allows ample competition and employs efficiency and innovation to produce products,
while also utilizing government central planning in certain areas like health care or in
taxing corporations (among other capacities) and managing trade.
And, while the U.S. government does have somewhat of a monopoly in sectors like
defense, private enterprise in areas like technology are picking up, like Amazon (AMZN -
Get Report) , Apple (APPL) , SpaceX and Alphabet (GOOGL - Get Report) .
Still, many have been critical of President Trump's claim on Twitter (TWTR - Get Report)
that "the Economy is booming like never before," despite promising recent numbers.
Other countries that use a mixed economy include France and the United Kin

31. • 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.