Economic Systems…• Combination of various agencies,

entities that provide the economic structure that defines the social community.• Involves the production, allocation of

economic inputs, distribution of economic inputs, distribution of economic output, households banks, and government.

Basic Units

• Household• Firm• Industry• Government

Functions of the Economic Systems

•What to produce-Capital vs. consumer•How to produce• For whom to produce• Economic growth

Socialism(controlled economy or communism)

Features • State ownership of means of production• Central economic planning• Social welfare• Equality of opportunity• Classless society• Absence of competition

Merits

• Social Justice• Economic Stability• Rational Allocation of Resources•Higher economic Growth• Absence of class struggle

Demerits

• Concentration of economic power in the state• Lack of incentive and initiative• Lack of consumer sovereignty• Loss of occupational freedom• Inefficiency and low

productivity• Corruption

Capitalism..• Features of capitalism• Right to private property : use of personal

property for individual gains• Right of Inheritance• Freedom of Enterprise• Freedom of choice for consumers• Profit motive• Competition : Large number of Buyers

and Sellers• Price mechanism: Demand AND Supply

Features of Capitalism contd…

• Role of government: a) No central planningb) Ensures law and orderc) Enact laws necessary for public

welfare

Merits Of Capitalism…

• Incentive : to undertake enterprise and bear risk

• Efficient Utilization of Resources• Rapid Economic Growth• Capital Formation : Creation of more

wealth which is to be left for children• Flexibility and Adaptability• Democratic Nature• Innovation

Demerits….• Concentration of economic power• Economic instability: Instability of the price level:

Cyclical fluctuations• Lack of Maximum social satisfaction: distribution of

goods according to the ability to pay rather than needs of the people

• Social waste: unnecessary expenditure on advertising and ruthless exploitation of natural and human resources.

• Rise of monopoly : Giant corporations dominate the structure

• Social discrimination: “Haves” and “have not”• Loss of human values : Materialistic attitude give

rise to social evil

Mixed Economy

Features

• Co existence of public and private sectors• Classification of industries• Economic planning• Price mechanism• Profit motive cum social welfare

Merits

• Individual freedom• Rapid economic growth• Social welfare

Demerits

• Economic instability• Lack of freedom• Inefficiency• Lack of coordination

State Control of Business

Rationale of state control• Legal framework• Imperfect competition• Minimising effects of wealth

and economic power• Social objectives:

employment, price stability and economic growth.• Egalitarian society

• Industrial base• Balanced regional development• Fulfilling the basic needs• Encouraging decentralized

industrial development• Profitable exploitation of scarce

national resources• Saving valuable foreign

exchange

Economic Roles of The Government

• Regulatory Rolea) Determining areas of

operationb) Regulation of practices

in economic centersc) Regulating relationship

among various segments of economy

• Promotional Rolea) Arrangement of education, health

and social welfareb) Encouraging entrepreneurial skillsc) Promotion of science and

technology and managementd) Providing facilities of transport and

communication

e) Establishment of financial and banking institutions

• Entrepreneurial Role

• Planning Role