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Basic Problems

This document discusses different economic systems and their key features. It describes capitalism as a system with private property and profit motive, and highlights both its merits like high production and consumer choice, as well as defects like inequality and instability. Socialism is defined as a system with state ownership and production for welfare rather than profit. A mixed economy combines aspects of both systems. The core economic problems revolve around deciding what and how much to produce, how to produce it, and who the goods will be distributed to.

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Anu
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38 views

Basic Problems

This document discusses different economic systems and their key features. It describes capitalism as a system with private property and profit motive, and highlights both its merits like high production and consumer choice, as well as defects like inequality and instability. Socialism is defined as a system with state ownership and production for welfare rather than profit. A mixed economy combines aspects of both systems. The core economic problems revolve around deciding what and how much to produce, how to produce it, and who the goods will be distributed to.

Uploaded by

Anu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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BASIC PROBLEMS

Economic systems
ECONOMIC SYSTEMS AND RESOURCE
ALLOCATION
Resources are limited
Wants are unlimited
 Decision regarding using the limited
resources
What are the Basic problems?
CAPITALISM
 Free and Private enterprise
 Factors of production are owned by few people

 Rest will sell their services for wages

 Arise out of Industrial revolution and factory system

 Pure capitalist system from 18th and 19th centuries


FEATURES
 Private property
 Profit motive

 Personal freedom

 Competition

 Price mechanism
MERITS OF CAPITALISM
 Enables higher levels of production
 Best utilization of resources

 Consumer is the king

 Stimulates invention

 Simple and automatic in its working


DEFECTS OF CAPITALISM
 Gross inequality: Rich become richer and poor becomes
poorer
 Wastage of resources: advertisements, multiple products

 Monopoly

 Economic instability: trade cycles

 Poverty in the midst of plenty


SOCIALISM
 Resources owned by the state
 Production& Distribution done for the welfare of the
people and not for the profit of individuals.
 Private property and private enterprises very little

 Nationalisation of assets
FEATURES
 State ownership
 Production & distribution by the state

 Central planning and control

 Controlled production and consumption

 Social security

 Reduction of inequalities
DEFECTS
 Little efficiency
 Wastage of resources

 Burden of administration high

 Lack of choice for consumer

 Loss of liberty
MIXED ECONOMY
 Merits of both system combined together to achieve
greater welfare
 Existence of private and public sector

 Planned economy

 Features of capitalism and socialism: Profit motive and


social interest will be blended
 Private initiative and accumulation of private property
allowed
DISADVANTAGES
 Defects of both system
 Work of the private sector and public sector will overlap

 Mixed economy may not remain mixed for a long time

 Public sector will enlarge and swallow the private sector


PROBLEM 1
What commodities should be
produced and in what Quantities?
Essential or non essential goods and
services?
Food grains, clothing and houses
Adequate Quantities
PROBLEM 2
How commodities should be
produced?
Method of production
Public/private /cooperative sector?
Technology to be used
Maximum goods at minimum cost
without wasting resources
PROBLEM 3
 For whom are the goods to be produced?
 Problems of distribution of the produced goods.

 If the products are expensive , the poor cannot afford


them.
 So goods have to be produced cheap for all to afford
DECISION MAKING
 State takes the decisions to solve these problems.
 Democratic government : Parliament

 Dictator: Arbitrary decisions

 Every country tried to solve these problems by


organising its economy
ECONOMIC SYSTEM
 Economic system refers to how people organise
themselves to satisfy their want
 Capitalism or Free enterprises

 Socialism

 Mixed economy

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