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AN ECONOMIC SYSTEM

An Economic System

An Economic System is a system that involves production, distribution and consumption of goods and services between the entities in a particular society.

It can either be completely owned and operated either by Manufacturers & Industrialists or by Government or by both with combining their efforts.

Capitalist Economy System:

Businesses are managed and owned by corporate & entrepreneurs.

Limited role of Government.

There are free private enterprises.

Price of goods & services are decided by market mechanism on the basis of demand & supply.

Although Profit motive is there but supremacy of consumers also exists.

Merits of Capitalism:

Gives encouragement to business.

Higher rate of Capital formation.

Optimum utilization of resources.

It is a justified system as competent entrepreneurs are rewarded.

Demerits of Capitalism:

Inequality in income.

This income inequality gives rise to class conflicts.

Problem of unemployment.

Lack of welfare.

Emergence of monopoly.

Socialist Economy System:

Socialist Economy is also referred as Centrally Governed Economy.

Institutions are owned by Government on behalf of public.

Govt. decides about establishment, location, production, distribution and prices of goods & services.

All activities are carried out for welfare of the society.

Freedom to choose any occupation is restricted.

Merits of Socialism:

There is Social justice for all segments of society.

No class conflicts because of equitable distribution.

Problem of unemployment is solved.

Better utilization of resources can be done by putting them to appropriate use.

Demerits of Socialism:

Biggest problem of Redtapism(corruption).

No encouragement to private owners for their own venture.

Concentration of economic power remains in hands of politicians & govt. officials.

Social welfare is only a myth as deserving candidates are not benefited.

Mixed Economy System:

Compromise between Capitalist & socialist Economic Systems.

Co-existence of public & private enterprises. Works on platform of PPP.

For establishing a private enterprise , entrepreneurs are required to obtain certain licenses or No Objection Certificate(NOC) form govt. authorities.

Both the Profit motive and Social Welfare Motive are fulfilled.

Merits of Mixed Economic System:

Concept of social justice works.

Competition between Public sectors & Private sectors which ultimately leads to benefit to society.

Proper Employment opportunities are provided to the population.

Equitable distribution of income is there.

Demerits of Mixed Economic System:

However equal income distribution is emphasized still some big parties enjoy economic power.

Political parties have a big influence over bureaucrats & govt. officials.

Sometimes the non deserving people enjoys the benefits in the name of nationalism.