Question

Explain the concept of an economic system and identify the key characteristics of capitalistic, central, and mixed economic systems. What kind of economic system does the United States have?

Answer 1

Answer: Concept of Economic system or to say economic order is defined as the complete system of production, resource allocation and  distribution of goods and services within a society or in a given geographical area.

On the basis of ownership of means of production and allocation mechanism , Economic systems have been divided into certain forms, which are being explained below with their key characteristics:

1.Capitalist system: economic system in which the ownership of means of production are in hands of private individuals and allocation mechanism is controlled they Market it self.

-least interference of governement.

-free market mechanisms i.e. based on the "invisible hands" theory of Adam Smith.

Example: follows in USA, UK etc

2.Central economic system: commonly known as command system or socialist economic system in which the ownership of means of production is in the hands of state and allocation mechanism is based on the central planning.

-Government controlled market system.

-Ignore the laws of supply and demand.

Example: follwed in USSR

3.Mixed Economic system: In this kind of system ownership of means of production is often shared by government as well as private individuals and allocation mechanism is mixed i.e. determined by market forces i.e. supply and demand as well as government decisions as well.

-Often strategic sectors remain in control of state like defence , railway etc and no strategic like other transports , infrastructure etc remain with private sectors.

example follows in countries like India etc.

4. United state follows the capitalist economic system which is largely based on the principle of Liberalism.

Hope it helps!

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