2. The Economic System Refers to a set of economic institutions that dominate a given economy with the main objective of solving the basic economic problems.
3. The Economic System, Cont.. An economic system is the combination of the various agencies, entities (or even sectors as described by some authors) that provide the economic structure that guides the social community. These agencies are joined by lines of trade and exchange along which goods, money etc are continuously flowing. This affects Production, allocation of economic inputs, distribution of economic outputs, and consumption of goods and services in an economy. It is a set of institutions and their social relations. Alternatively, it is the set of principles by which problems of economics are addressed, such as the economic problem of scarcity through allocation of finite productive resources.
4. The Economic System, Cont… An economic system is composed of people, institutions, rules, and relationships. For example, the convention of property, the institution of government, or the employee-employer relationship. Examples of contemporary economic systems include capitalist systems, socialist systems, and mixed economies. Today the world largely operates under a global economic system based on the capitalist mode of production. "Economic systems" is the economics category that includes the study of such systems.
5. Definition An organized way in which a state or nation allocates its resources and apportions goods and services in the national community.
6. Types of Economy System The classification of different societies into traditional, command, market and mixed economic systems spans the entire course of history, but in the last century the world has been divided into great economic and political systems representing socialism and capitalism.
7. Types of Economic System
8. Cont…… Capitalism( market economy) - is an economic system in which most resources are privately owned, people are free to choose their occupation, the kind and amount of production is determined by price and people searching for a profit, and there is substantial amount of competition.
9. Communism - holds that the people themselves, not the government, own the means of production. In a communist state, everyone works at what he or she can do best. There is no system of wages or profits needed to spur people to work. Everyone simply takes from what is produced whatever he or she needs to live comfortably. No government or bureaucracy supervises that what the people do.
10. Socialism(planned economy) - is an economic system in which the government owns and operates the major industries of the country. It means also that the government decides in those major industries the answers to the three economic questions. Socialism does not imply dictatorship. Socialism can exist in democratic countries as well as authoritarian ones. The main reason for socialism’s existence is that socialists hope to overcome capitalism’s two important problems. The unequal distribution of income and wealth The uneven course of economic growth with periods of boom or bust.
11. Features of Economic System: It is the set of principles by which problems of economics are addressed. With the help of economic system any country can allocate it’s resources in a batter and efficient way so that problems can be reduces. An economic system gives the answer of three questions i.e. – What to produce, how to produce and for whom to produce. An economic system provides the deep knowledge about the Capitalism, Communism and Socialism. Which plays an integral part in any country’s economy.
12. Features of Economic System: The institution of private ownership is generally accepted. Factories, land, goods, and services are privately owned by individuals or group of individuals like stockholders and shareholders. Most people are free to pursue their own economic self-interests, that is, to work for personal gain. For this reason, capitalism is often called the free-enterprise system; most people are free to choose their own occupations. Because people are motivated by self-interest, they compete with one another to get ahead, to make a better product, to control markets in order to maintain or obtain a large profit. There is always a struggle for larger profit lead (usually, but by no means always) to a high degree of competition among business
13. The circular flow of economy Goods and Services Factors of Production (land, labor, capital, entrepreneur) Household Sector Business Sector Payments of Factors (rent, wages, interest, profit) Payment of Purchase of goods and services.
