A System is a set of interrelated subsets or elements to works in a totality. An economic system is the method society uses to allocate its resources (land labor, capital, and entrepreneurship) to satisfy needs. An economic system differs from another in respect of the control factory of production and the interaction of business, government and consumers. In the world, there primary types of economic systems-Capitalism, Mixed Economic and Socialism. In fact, the existence of the economics of the system was more prevalent in the mid and late 20th century. At present the world is moving to one system known as Market Economy or Capitalism or Capitalistic Economic.
Capitalism: Capitalism is an economic system where the factory production is in private hands, individuals are owner of resources. It is also called private enterprise system.
Pure Capitalism or Market Economic: Pure capitalism is one in which economic decisions the market forces of supply and demand. Adam Smith highlighted this eighteenth century book “the wealth of Nations” In this system, marker forces or demand of consumer’s determine the production of specific product, its quality, quantity, cost price etc. Demand and supply determine an equilibrium position for a production of a product. This system is also called “Laissez-faire”, economy as the government takes laissez-faire or hands- off approach and does not interfere in the economy system.
In pure capitalism, Industry-owners and individuals use resources according to their choice. In pursuing self-interest, producers makes as much as they can sell, and consumers buy as much as they can afford. .In this system each person behaves rationally in the best interest of the society. Government does not take any step to regulate the economy. Market forces act like invisible hand and regulate the economic conduct of the buyers. Market places are regulated by the interaction of the buyers and the sellers or producers. Consumer’s rejection to low quality product or high priced product compels the producer to improve the quality or price position. Thus there is a balanced position in the market place due to the operation hand.
Mixed Capitalism or Mixed Economy: Mixed capitalism is an economy system based on a market economy with on a market economy with limited government involvement. Here government abandon the principle of the invisible hand in favor of a more visible involvement in economic life. Mixed economy is a combination of communism or socialism. In this system, government used two economy tools.
- The power to tax and
- Government Business: Government acquires funds to finance or launch essential public utility programs; such as defense, education, transportation, and social services.
In the mixed economy:
- Government owns and operates some industries for the benefit of the public.
- Government regulates and control the operations of some businesses.
- Government interferes in the employer -employee revelations by the drawing up of regulatory enactments.
Socialism: Socialism is an economy system in which much ownership is private, but the Government controls the operation and direction of industries. Government retains the control of basic industries to ensure the availability of necessary of necessary products or services to everyone, not only for those who have money. Such basic industries include mining defense, steel production and transpiration, communication, health care, and auto manufacturing, etc.
Communism: Communism is the strictest from of social form of ownership. Socialism is basically a compromise between capitalism and communism. To ensure full social control and ownership, it was themed and practice in the peoples’ Republic of China (PRC). Later on, China or PRC retarded from this philosophy and started following capitalism or mixed economy gradual.