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Economic System

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Jamiu Aderonpe
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12 views

Economic System

Uploaded by

Jamiu Aderonpe
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Economic systems

An economic system describes the way in which an economy is organized and run,
including alternative views of how resources are best allocated.
An economic system consists of those institutions which a given people, nation or group
of nations has chosen or accepted as the means through which their resources should be
utilized for the satisfaction of their needs.
The main types of economic system
(1) Free or Capitalist Economic system/Capitalism
(2) Centrally-planned or controlled or socialist economic system/socialism
(3) Mixed Economic system
Free or Capitalist Economic System/Capitalism
This is a system whereby the ownership and management of all means of production are
vested in the hands of private individuals. It is operated in the USA, Japan, North
America, New Zealand, Western Europe, Australia, Israel etc.
FEATURES OF CAPITALISM
(1) Ownership of private property, which includes accumulation of wealth and acts as an
incentive to savings.
(2) Inheritance which is the right of an owner to designate the recipient of title to his
property at the time of his death.
(3) Profit move, in which people’s economic activities are guided primarily by profit
motives and the desire to maximize satisfaction.
(4) Competition, which helps in creating preserving efficiency in the production of goods.
(5) Freedom of individual initiative.

MERITS OF CAPITALISM
(1) It facilitates a rise in the standard of living.
(2) It increases the production of consumer goods.
(3) Technological advancement appears to be faster.
(4) Its flexibility and adaptability have permitted environmental changes.
(5) It encourages individual initiative and greater freedom to pursue his interest.
DEMERIT OF CAPITALISM
(1) It brings about economic inequality.
(2) It encourages the acquisition of economic goods.
(3) It serves as an incentive to the creation of artificial scarcity.
(4) It brings about economic insecurity.
(5) It encourages individualism.
(6) It brings about wasteful use of productive resources.
(7) It widens the gap between the rich and the poor.

SOCIALISM
This is a system whereby the ownership and management of all means of production are
collectively owned and controlled by the state. Allocation of resources and distribution of
goods and services are left in the hand of the central authority.

FEATURES OF SOCIALISM
(1) State ownership of means of production.
(2) Promotion of social welfare.
(3) Centrally planned economy.
(4) Absence of price mechanism.
(5) Collective decision making.
(6) Absence of profit motive.
(7) Equitable distribution of income.

ADVANTAGES OF SOCIALISM
(1) Employment opportunities.
(2) Consumers are not exploited.
(3) No economic rivalry.
(4) Equitable distribution of income.
(5) Job security.
(6) Promotion of social welfare.
(7) Growth of private monopoly is checked.
(8) No overproduction of goods.
(9) Equitable allocation of resources.
(10) Centrally planned economy.
DISADVANTAGES OF SOCIALISM
(1) Growth of state monopoly.
(2) Absence of competition.
(3) Loss of consumer sovereignty.
(4) It reduces productivity.
(5) Economy is not self-regulating and functioning.
(6) It suppresses individual initiatives.
(7) Lack of innovations and inventions.
(8) Bureaucracy and red-tapism
(9) It slows down economics development.
(10) Absence of consumer choice and satisfaction.

MIXED ECONOMY
This is an economic system in which the means of production and distribution are in the hands
of both private and public sectors.
FEATURE OF MIXED ECONOMY
(1) Joint ownership of means of production.
(2) Joint decision.
(3) Freedom of choice.
(4) Provision of wealth services.
(5) Freedom of production, distribution and consumption.
(6) Government intervenes to regulate prices.
(7) Profit motive.
(8) Presence of competition.
ADVANTAGES OF MIXED ECONOMY
(1) Equitable distribution of wealth.
(2) It encourages growth and development.
(3) It encourages economy competition.
(4) Freedom of choice.
(5) Provision of welfare services.
(6) Prevention of monopoly.
(7) It encourages development of private initiative.
(8) It combines capitalism and socialism.

DISADVANTAGES OF MIXED ECONOMY


(1) Lack of efficiency
(2) Corruption and mismanagement
(3) Inequality of wealth
(4) It leads to waste of resources
(5) Exploitation of labour
(6) Conflict of interest
(7) Emphasis on profit
(8) Existence of bureaucracy

EVALUATION
(1) Differentiate between capitalist, socialist and mixed economic system.

The three fundamental economic problems of society are as follows:-


(1) What to produce
(2) How to produce
(3) For whom to produce
In capitalist economic system, individual propelled by the profit motive to decide what should
be produced and how best to produce it. Here, a person consumes whatever his income allows.

In socialist economic system, price does not play a crucial role as state decides what to
produce and the method of production to be adopted. The government often introduces
rationing of goods among the people.

In mixed economic system, the state is guided by welfare consideration and private
individuals by the profit motive. People consume whatever their money can buy but the state
often provides some subsidized goods and services to all members of society.

GENERAL EVALUATION
(1) What is economic system?
(2) How would you describe the mixed economic system? State its merits and
demerits
(3) Compare and contrast capitalism and socialism.

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