The document discusses three main types of economic systems - market-based economies, command-based economies, and mixed economies. It provides characteristics, examples and benefits/limitations of each system. A market economy relies on supply and demand, private property, and competition. A command economy involves central government planning and control. A mixed economy combines elements of both market and command systems, with public and private sectors co-existing.
2. Economic System
• Economic System is the system of 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.
• Economic system classified into mainly three economic system
• Three economic system:
• 1.market-based economy
• 2.command-based economy
• 3.mixed economy
3. Market based Economy
• A market economy is an economic system where decisions regarding investment, production, and
distribution are based on the interplay of supply and demand, which determines the prices of goods
and services.
• Market economy: its drive by consumer, consumer choice determine how industry and finance
market operate.
4. characteristics of market based economy
1. Private Property:
Most goods and services are privately-owned. The owners can make legally-binding contracts to
buy, sell, or lease their property.
2. Freedom of Choice:
Owners are free to produce, sell and purchase goods and services in a competitive market.
3. Competition:
The force of competitive pressure keeps prices low. It also ensures that society provides goods and
services most efficiently.
4.Limited Government.
The role of government is to ensure that the markets are open and working.
5. Examples
• Countries that have a market economy are
• Mexico
• HONG KONG
• United States
• Switzerland
• United Kingdom
• Germany, and Canada .
• These countries have a market economy because the prices of goods and services are set
by supply and demand
6. Benefit of Market based Economy
• 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
7. Major limitations
• 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
8. Command based economy
• A command economy is where a central government makes all economic decisions.
• The government or a collective owns the land and the means of production.
• It doesn't rely on the laws of supply and demand that operate in a market economy.
9. Examples
• Belarus - This former Soviet satellite is still a command economy. The government owns 80
percent of its businesses and 75 percent of its banks.
• Iran - The government controls 60 percent of the economy through state-owned businesses. It uses
price controls and subsidies to regulate the market. This created recessions, which it has ignored.
Instead, it devoted resources to expanding its nuclear capability. The United Nations imposed
sanctions, worsening its recessions. The economy improved once the nuclear trade deal ended
sanctions in 2015.
• North Korea - After World War II, President Kim Il-sung created the world's most centrally-
planned economy. It created food shortages, malnutrition and several bouts of mass starvation.
Most state resources go into building up the military.
• Cuba
• Libya
10. Characteristics of command based economy
1. The government creates a central economic plan.
The five-year plan sets economic and societal goals for every sector and region of the country. Shorter-
term plans convert the goals into actionable objectives.
2. The government allocates all resources according to the central plan.
It tries to use the nation's capital, labor and natural resources in the most efficient way possible. It
promises to use each person's skills and abilities to their highest capacity. It seeks to eliminate
unemployment.
3. The central plan sets the priorities for the production of all goods and services.
These include quotas and price controls. Its goal is to supply enough food, housing, and other basics to
meet the needs of everyone in the country.
It also sets national priorities. These include mobilizing for war or generating robust economic growth.
11. 4. The government owns monopoly businesses.
These are in industries deemed essential to the goals of the economy.
That usually includes finance, utilities, and automotive. There is no domestic competition in these
sectors.
5. The government creates laws, regulations, and directives to enforce the central plan.
Businesses follow the plan's production and hiring targets. They can't respond on their own to free
market forces.
12. Benefits of command based economy
• Better salaries
• Stable Environment
• Eliminates poverty
• Better Products
• Fulfils survival need
• Opportunity for citizens to explore non-economically-productive pursuits
13. Limits of command based economy
• Distorted price signals
• Suppression of economic democracy
• Slow Technological advancements
• Minimize self management
• Reduced incentives
14. MIXED ECONOMY
• Any economy in which private corporate enterprises and public sector enterprises exist
side-by-side, and decisions taken through market .
• 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.
15. Examples
• India
• Iceland
• Sweden
• France
• Russia and China.
• In a mixed economy, private and public sectors go side by side. The government directs
economic activity in some socially important areas of the economy, the rest being left to
the price mechanism to operate.
• Before Independence, Indian economy was a ‘laissez faire’ economy. But post-
independence, she adopted the mixed economy system.
16. Characteristics of Mixed Economy:
• 1. Co-existence of the public and Private Sectors: The heavy industries such as defence
equipment, atomic energy, heavy engineering industries etc.
• 2. Economic Welfare: Private activities are influenced through monetary and fiscal policies to
make them contribute to economic welfare of the society at large level.
• 3. Economic Planning:
• 4. Free and Controlled Economic Development:
17. Merits of Mixed Economy:
• 1. Adequate Freedom:
• 2. Maximum Welfare:
• 3. Modern Technology:
• 4. Best Allocation of Resources:
18. Demerits of Mixed Economy:
• 1. Low inflow of Foreign Capital:
• 2. Inefficiency of Public Sector:
• 3. Maximum Control on Private Sector:
• 4. Fear of Nationalisation:
• 5. Problem of Concentration of Economic Power:
• 6. Presence of Imbalance in the Economy: