Economic Systems Economic System refers to the manner in which individuals and institutions are connected together to carry out economic activities in a particular area. It is the methodology of doing economic activities to meet the needs of the society. There are three major types of economic systems. They are: .
Capitalist Economy (Capitalism), . Socialist Economy (Socialism)and . Mixed Economy (Mixedism) - - Introduction to Macro Economics The means of production in a Capitalist economy are privately owned. Manufacturers produce goods and services with profit motive.
The private individual has the freedom to undertake any occupation and develop any skill. The USA, West Germany, Australia and Japan are the best examples for Capitalist economies. However, they do undertake large social welfare measures to safeguard the downtrodden people from the market forces. Features of Capitalist Economy .
Private Ownership of Property and Law of Inheritance: The basic feature of capitalism is that all resources namely, land, capital, machines, mines etc. are owned by private individuals. The owner has the right to own, keep, sell or use these resources according to his will. The property can be transferred to heirs after death.
. Freedom of Choice and Enterprise: Each individual is free to carry out any occupation or trade at any place and produce any commodity. Similarly, consumers are free to buy any commodity as per their choice. .
Profit Motive: Profit is the driving force behind all economic activities in a Capitalist economy. Each individual and organization produce only those goods which ensure high profit. Advance technology, division of labour, and specialisation are followed. The golden rule for a producer under capitalism is ‘to maximize profit.’ Capitalism and socialism are two extreme and opposite approaches.
In capitalism, there is total freedom and private ownership of means of production. In socialism, there is no freedom for private and there is public ownership of means of production. Mixedism denotes the Co-existence of capitalism and socialism. The features, merits and demerits of various economic systems are discussed below.
. . Capitalist Economy (Capitalism) Adam Smith is the ‘Father of Capitalism’.