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Economic System Definition - Types, Features, Characteristics

The Term Economic System is used in two senses – In the narrow area and in the wide area. In a narrow sense, the economic system is concerned with the methods of production and production relations. By the methods of production we mean the techniques of production, whereas under the relations of production we see who has control over the means of production and how these people combine labor with these means for production. In a broad sense, economic system includes economic organization in addition to production technology and production relations.

Economic System Definition

Explaining the meaning of economic system, various scholars have expressed their views. The definitions of some of the best schools are given below. definitions of economic system

According to Lockes, “Economic system consists of those resources which a human community or a nation or a group of nations adopts in the form of resources in which its resources can be used for the fulfillment of human needs.

Pre. AJ According to Brown, “Economic system is a method by which people make a living.” This definition includes all those sectors in the economic system from which individuals get employment.

According to Mrs. John Robinson, “Any economic system requires a set of rules, an ideology to justify their justification and the conscience of the individual by which they can strive to fulfill them. " In this definition, more emphasis has been laid on the implementation side.
Economic System Definition, Economic System types, Economic System features, Economic System characterstics
Economic System Definition

Economic Systems Types

3 Types of Economic Systems

Capitalist Economic System

Capitalist or free economy is the most prevalent system out of all the economies that are in use in the world in the present era. The birth of the modern form of this system is considered to be the result of the Industrial Revolution in England and after that it spread to many countries of the world. Despite facing many difficulties, this system is present in the most prosperous countries of the world, adjusting with the new conditions. Although the pure form of this system is not found in any country, but still in its refined form it is in the country in America, England, France, Japan etc. This system is also called "free enterprise economic system".

Pro. Chenham has written while giving the definition of capitalist economic system, there is no central planning of entire production in capitalist economy. Within the limits set by the state, every person is almost free to do as he pleases. The owner of its internal means is free to use them as he pleases and spend his income as he pleases. In the words of Luks and Hus, “Capitalist economic system is a system whose main characteristic is private ownership and use of man-made and natural resources for the purpose of personal gain.

Socialist Economic System

In the capitalist economic system, the tendencies of class struggle and economic exploitation made it self-sustained. The economic system which will be born after the fall of capitalism, Kal Mars has called it socialism. That is why Karl Mars is called the father of socialism. From the ancient thinkers to the present day various thinkers have expressed so many different views about socialism that it has become very difficult to explain socialism properly. In this regard Prof. Jodd wrote, “The form of socialism is like a hat that has been disfigured, because everyone wears it.

Different scholars have given different definitions of socialism. Pro. According to Dickison, “Socialism is that economic organization of society in which the material means of production are the rights of the whole society and they are exercised in accordance with a general economic plan by such institutions which are representative and responsible to the society”. In this way, all the members of the society are entitled to benefit from them on the basis of equality.

Mixed Economic System

In the present era, the form of purely socialist or world-capitalist economic system is very less prevalent. The mixed form of these two systems is called mixed economic system. At present, the trend of this system is becoming more visible. In this system an attempt is made to utilize the good qualities of the capitalist and socialist economic system. Under this system, the government controls the important industries from social point of view and the rest of the industries are allowed to represent the people. Mixed economy has been adopted as the economic system in India.

  • Global Business Environment Definition
  • From a detailed study of all the above definitions, it can be said in a nutshell that “Economic System is made up of all those institutions by which minimum resources are used for maximum social and economic welfare for the fulfillment of all needs, private and public"

Economic System Characteristics

1. Group of Individuals

Economic system is the group of individuals, who conduct the production process to get employment and fulfill their needs. The economic system is applied to a group of individuals who reside in a certain territory.

2. Exchange Process

An important feature of the economic system is also the exchange process. The goods produced by this process are delivered to the consumers. Exchanges are facilitated by markets, shops, stores, etc. On the other hand, banks, money markets, financial institutions, insurance companies, etc. make it possible.

3. Consumption Process

The third process in economic processes is that of consumption, which is the essence of all production processes. Consumption process involves the satisfaction of both types of needs – present and long term.

4. Change of Nature

The nature of the economic system is not static but is dynamic i.e. variable. The reason for this is that the economic system is related to human needs. Human needs are not fixed. Therefore, due to change in needs, the nature of economic systems also keeps on changing.

4. Change of Nature

The nature of the economic system is not static but is dynamic, that is, variable. The reason for this is that the economic system is related to human needs. Human needs are not fixed. Therefore, due to change in needs, the nature of economic systems also keeps on changing.

5. Production Process

Production method has an important place in economic activities. Every economic system makes continuous use of land, labour, capital, machines, skills, new technology etc. to produce goods and services from which consumer goods and capital goods are generated. No economy can ignore the social relations of individuals - be it capitalist, socialist or mixed economy. Everyone has to arrange for production. In an economic system, the production process of goods and services goes on continuously. The goods produced are used for consumption or are used again in production.

6. Fundamental Problems

The fundamental problems of all types of economic systems are the same, such as how much of different goods should be produced, how to distribute them, how to allocate resources etc.

7. Rarity of Resources

Whatever may be the nature of economic system, but it is true that the resources in which goods and services are produced are scarce. It is precisely because of this problem that an economic system is needed. If the means of production were not scarce, there would be no economic system. Therefore optimal allocation of resources is the central point of any economic system.

8. Economic Activities

Economic system is related to economic activities. The activities related to production, exchange, use, distribution, saving and investment etc. of money are called economic activities. These economic activities themselves are man-made. That is, they are exactly as humans make them.

9. Monetary System

The monetary system plays an important role in the conduct of activities like production, consumption, exchange, distribution etc. in the economic system. The consumer earns money to meet his needs, which he gives to the investing producer. As a result, the investor distributes it among the means associated with the production process. Money is again exchanged with goods and thus this cycle continues.

10. Maximum Social Welfare

Under the economic system, goods and services are produced to satisfy all the personal and social needs so that maximum economic welfare can be achieved with minimum resources available.

11. Under different economic systems, different types of policies are used to solve their problems.

Capitalist System Definition

Capitalist System Definition - Capitalism is an economic system in which goods are produced and distributed by such private individuals or groups, who use their accumulated wealth for the purpose of earning more money for themselves.

Features of Capitalism

Lack of Central Planning

The most important feature of capitalist system is that there is no central economic plan in it. The capitalist system is based on the independent actions of thousands and millions of people. In these actions of different people, a balance is established through the value system. Production decisions are taken by a number of producers out of stock and consumers influence production decisions through price points. Only those goods are produced in the society which the consumers demand. Goods in low demand are produced in less quantity and those in high demand are produced in more quantity. Thus, the capitalist system, which appears unplanned and uncontrolled, is in fact completely regular and controlled.

Freedom To Own Private Property

The institution of personal property is the foundation of capitalism. Without this institution it is not possible to give freedom to the people in the choice of use and occupation. In capitalism, the person has full right to keep the property and give it to the heir. Property can be owned either directly or in the form of ownership of shares of business units. Without these property rights it is not possible to maintain the unplanned nature of capitalism.

Class Struggle

Class struggle is one of the main features of capitalist economy. Its end society remains divided into two parts, Huzur (Haves) and 'Have Nots'. The interests of the two classes are opposite to each other. The employers exploit the workers economically to maximize their profit, while the workers pressurize the employer to get maximum facilities and wages through labor unions. As a result of this, sometimes there are strikes and sometimes there are lockouts. Thus, in a capitalist economy, there is always a situation of conflict between the owners and workers.

Economic Inequalities

Capitalist economy has a large number of economic inequalities. The rich people of the wealthy class have abundant resources, whereas the wealthless poor class does not have the means to earn even two times of bread. There was no wealth in the capitalist economy

There is a tendency to be concentrated in only a few classes, due to which the rich become richer and the poor become poorer. With the progress of capitalism, the gap between the rich and the poor widens. Specialization, mechanization and monopolistic forces have further increased these inequalities.

Freedom To Save

In capitalism, every person has the freedom to decide how much he should save and spend from the income. In this way people are concerned about their present consumption and future. Be absolutely free to choose between consumption. Along with this, they also have the right to inherit their savings or the property created from it. People to keep and own private property. You have the freedom to use as per your wish.

Freedom To Invest

In capitalism every individual is free to take his own investment decisions. He can invest his capital in any industry he wants. The investment class is completely free to decide the amount and type of investment. In the capitalist economy, investment decisions are taken by individuals on the basis of expectation of profit. Investments are made more in those sectors and industries in which profit is expected, and less investment is made in low profit industries. The freedom to save and invest is mainly responsible for the unplanned nature of capitalism. Investment decisions made by individuals on the expectation of profit create conditions of unemployment and opportunity in capitalism.

Business Cycle

The sum of one bullish period and one bearish period is called business cycle. In a capitalist economy, when the production relations of the producers get disturbed, sometimes the problem of over production and sometimes under production arises. Decrease in the prices of highly productive goods i.e. recession and increase in the prices of less productive goods i.e. give rise to boom period. In the capitalist economy, there is a boom after a recession and a recession after a boom in a continuous sequence.

Significance Of Courage

In a capitalist economy, courage is the most important component of development. He collects all the means of production, takes the right decisions regarding production and also bears the risk of profit and loss. It is not possible to even imagine the development of capitalism without qualified and skilled adventurers.

Sovereignty Of The Consumer

In a capitalist economy, the consumer can buy whatever he wants and there is no restriction on his freedom in this regard. His activities are limited only by the amount of money produced and his material income. It is because of this kind of freedom to the consumer that it is sometimes said that in capitalism consumer dominates. In the unplanned economy of capitalism, there is no authority other than the consumer. The quantity and type of production are decided according to the wishes of the consumers and the consumers are completely free in the field of consumption.

Freedom Choice Profession

In capitalism all people have the freedom to choose their profession

Socialism Economic Definition

Features of Socialism

Ownership Of The Means Of Production

The main feature of socialism is that under it the means of production are not owned by individuals, but the entire society is owned by the government. The government owns all the natural resources available in the country, such as land, forest, mineral wealth etc. The government owns and controls its large factories, means of transport and the means of production used in large productions.

But this does not mean that in socialism all resources and goods are owned by the government. Small-scale production is owned by private individuals, in addition, houses, furniture, radios and other household items are also owned individually.

Objectives Of Social Welfare

In the capitalist economic system, resources of production are owned by private individuals, which they use for their own benefit. In contrast, in socialism, the government owns the means of production, which it uses for the welfare of the whole society, not for any particular individual. Private profit does not exist in socialism. All economic activities of the government are aimed at increasing the welfare of the society.

Reduction In Economic Inequalities

In socialism, efforts are made to remove economic inequalities. Equal opportunities are provided to all persons according to their ability and there is no possibility of economic exploitation. As a result, the inequalities in the distribution of wealth and income in the society are very less.

Solution To The Problem Of Unemployment

There is no problem of unemployment in a socialist economy like capitalism. Employment is provided by the government to every person according to his ability. The government itself bears the responsibility of the maintenance of handicapped widows and sick people.

Economic Planning

The price system is active in the capitalist economic system. The price mechanism is the basis of cheap economic decisions. But in the socialist economy, the value system is not allowed to function pre-femininely. All economic decisions are taken by the government itself. For this, the government establishes a planning board. It is the Central Board or the Planning Board that takes all the economic decisions and conducts and controls the economic activities.

Elimination of Unearned Income

In a socialist economy, every person gets work according to his ability and everyone is provided with the necessary facilities. In this the rules of succession do not apply. Therefore, no person gets wealth or income without doing labor. Every person has to work hard for his livelihood.

End of Exploitatio

In a socialist economy, no person can exploit another person financially. The reason for this is that private property and profit do not exist in a socialist economy. In this, the means of production are owned by the government which are used for public benefit and not for exploitation. Unlike the capitalist economy, the capitalist class and the working class are also not found in it. The workers are the masters. Hence the question of their exploitation does not arise.

Lack of Competition

Competition does not exist in a socialist economy. The reason for this is that all the goods are produced and sold only by the government. The prices of goods are also set by the government. Other persons do not have the right to produce and sell the goods. So the government does not face any competition in the market.

Mixed Economic Definition

In a mixed economy, an attempt is made to highlight the good aspects of both capitalism and socialism. The main features of this type of economy are as follows-

Features of Mixed Economic

Co-Existence Of  Private & Public Sectors

The great feature of mixed economy is that in this type of system both private and public sectors work together. Developing both types of sectors is a definite part of the government's policy. But it is necessary for the private sector. To coordinate in the interest of private and the interest of society. The separate sector of private industry and public industry is fixed by the government. Generally, the government does not interfere in the operation of the private sector unless it is in the public interest to do so, but this sector is largely excluded so that it can be kept within the limits of social interest. The private sector and the public sector are not completely separate from each other, rather they are interdependent. Both the sectors work as both the parts of an economy and there is no mutual competition between them. The division of industries into private and public sector means to benefit from both types of business organizations. Industries of national importance are kept in the public sector and other industries are left in the private sector. There may be some industries in which both private and public sector can work. In a mixed economy, although the private sector remains, it does not get a significant or influential place in the economy.

Division Of Economy

In mixed economy, industries are mainly divided into the following sectors

  1. (i) Public or state sector - The industries which are considered important from the security and social point of view of the country are operated by the state itself and their control and ownership is completely in the hands of the state.
  2. (ii) Private Sector – Some industries are left completely to the private sector, whose management and ownership are completely in the hands of private industrialists. But these sectors also work under the economic policies of the government.
  3. (iii) Joint Sector - In some areas, the state establishes and operates industries with the help of private industrialists, it is called joint sector, in these industries the state and private industrialists sing capital together but the capital of the state is more. The skill and experience of private entrepreneurs in these areas are fully leveraged.
  4. (iv) Co-operative sector - In mixed economy there are also some cooperative sector industries, which are established and operated by cooperatives.

Economic Welfare

Economic welfare is the basis of the division of economic activities into all the sectors "one of the main features of this economy is that it is mainly operated keeping in view the welfare and prosperity of the citizens. Keeping this evil in mind, economic activities are divided into all sectors. Public sector development is done with the aim of developing backward areas, increasing employment opportunities and reducing inequalities so that balanced development of the entire economy can be done."

Reduction In Economic Inequality

Under this economy, arrangements are made for equal distribution of wealth and all the causes of economic inequalities are banned. In this economy, monopolistic tendencies are curbed and inequalities in the distribution of income and wealth are removed by progressive tax, inheritance tax, death tax and profit tax.

Important Role of Government

Government plays an important role in this economy. On the one hand it runs the public sector, on the other hand it also takes care of whether all the sectors of the economy are functioning efficiently from the point of view of social welfare. The government formulates and implements policies according to the circumstances of the nation so that the balance development of the economy can be achieved. In this economy, the government takes care of whether the benefits of economic development are being distributed by the evil of social justice. For this, the government tries in such a way that the inequalities between different people, classes and regions can be eliminated or minimized.

Important Role Of Value Plant

Value plant exists in a mixed economy and plays an important role in distribution, but still, in this system, full control is kept by the government on the value plant so that financial inequalities are not encouraged and society welfare may increase.

Purpose of Profit

Under this economy, only such an exemption has been given to the private sectors to earn profit, so that their efficiency can increase. These areas are not allowed to make profit by exploiting the masses. The main objective of the public sector is social benefit and economic welfare. But still, the main objective of some industrial profit is social benefit and economic welfare. But still some industries exist for profit motive. In a public sector industry, production can also be done at a loss, but efforts are made to minimize this loss. In this economy both the profit motive and the value plant together affect the allocation of resources.

Economic System:- You Know In This Article

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