Economic Systems

• Different types of economic systems manage the factors of production in different ways.
• Economic systems may be planned or market.
• In a planned economy, the government owns factors of production.
• Social equality is a major goal and private enterprise is generally regarded as wasteful and exploitative in a planned economy.
• Two basic forms of planned economies are communism and socialism.
• Communist economies are characterized by state ownership of the factors of production and by planned resource allocation.

• Communism is a system in which the government owns ands operates all sources of production.
• The economic systems of Cuba and China are examples of communism.
• Production, distribution and consumption of goods are all controlled by state.
• reduces the disparity in the distribution of income and wealth and
• Prevents concentration of wealth in the hands of a few industrialists and traders.
• Because of the commitment to social welfare, there is less of a gap between rich and poor in a communist economy.
• The type of economic system that allows individuals the least economic freedom is communism.

Market economy

• In market economy, individuals own factors of production. Market economy is an economy in which individuals control production and allocation decisions through supply and demand.
• Demand is the willingness and ability of buyers to buy a good or service.
• Supply is the willingness and ability of producers to offer a good or service for sale.
• Market is a mechanism for exchange between buyers and sellers of a given good or service. Here both buyers and sellers a) enjoy freedom of choice; they have private property rights, c) Right to compete and d) right to make profit.
• In market economy, individuals own factors of production.
• Market economies may take two forms- capitalism and mixed economy.
• Capitalism is a market economy which provides for private ownership of production and which encourages entrepreneurship by offering profit as incentive.
• Private initiative and enterprise are given greater importance in the capitalist economic system. Trade, industry and commerce are developed by the initiative of the individuals.
• In a pure capitalistic economy, all production and allocation decisions are made by private holders of property and money.
• In market economy, individuals own factors of production.
• Market economies may take two forms- capitalism and mixed economy.
• Capitalism is a market economy which provides for private ownership of production and which encourages entrepreneurship by offering profit as incentive.
• Private initiative and enterprise are given greater importance in the capitalist economic system. Trade, industry and commerce are developed by the initiative of the individuals.
• In a pure capitalistic economy, all production and allocation decisions are made by private holders of property and money.

Mixed Economy

• In reality, most countries rely on some form of mixed economy- a system features characteristics of both planned and market economies.
• It takes the merits of both capitalism and socialism.
• Both public and private ownership exists side by side in this system and both the public and private sectors participate in the economic development of the country. Mixed capitalism occurs when the government uses its power to affect prices and wages or to change the way resources allocated.
• Mixed capitalism is an economic system in which operation of the free market is influenced to some degree by government involvement.
• When trade and commerce are developed through private and public initiative and enterprise, it is known as mixed economic system