Question

Q1. Why Economic system is important for any country?   

Q2. Based on your understanding of economic system, find out which economic system shall be focusing on more creativity and innovation? Explain your answer by focusing on:

a) Name of the country with type of the system and justification?   

b) Discuss any two problems for the chosen economic system.   

Answer 1

Answer 1:

Economic System is important for any countries because it is the economic system which determines the distribution and allocation of resources in the economy, the amount of government intervention in the economy, exchange rate of the economy, foreign policy of the government, prices, resource distribution etc in the economy. Thus, all major decisions in the economy depend on economic system of the economy.

Answer 2:

The economic system which focusses more on innovation and creativity is Free Market Economic System. This is because markets or the producers are free to choose their production technique, level of production which increases production efficiency in the economy. An example of a country following free market system is the United States. Since the free markets are free to choose their production and selling decision, the efficiency is maximum which also promotes innovation and creativity.

Two problems associated with free market system are as follows:

a. Market Failure- In some cases market fails like public goods, externailities etc, which requires intervention by the government.

b. It can lead to inequality in the economy which increases poverty especially in developing economies.