Question

What is an economic system? How can we evaluate its characteristics?

Write in a detailed paragraph the answer,

Thanks for the help.

Answer 1

An economic system means the sum total of all those devices and institutions through which economic choices are made and scarce resources are used for the purpose of satisfying various human wants.

The two important economic systems 1.CAPITALISM.2,SOCIALISM.

Capitalism is an economic system in which productive resources are owned by private individuals and economic decisions are privately made.Government intervention is minimum.

Its features.Economic freedom to producers,Competition among producers to make profit ,Efficient use of resources ,Spirit of enterprise.All these will result in increase in production.But it can create situation like

1.class struggle between capitalists themselves as there is competition.

2.Class struggle between workers and capitalists which will lead to strikes and lockouts.

3.Inequalities of income distribution as rich becomes richer and poor becomes poor.It promotes materialism.

4.Social welfare will be neglected.

Socialism is an economic system in which all productive resources are owned by the entire society and operated by a public authority.

Is features.All ownership by the state,Economic planning for all productive activities,A classless society as production is controlled by the state,Elimination of competition etc.All these can give rise to better allocation of resources ,fuller utilization of resources ,stability in the economy as there is no class struggle,increase in productive efficiency as there is equal opportunity for all and production of more useful goods as it is decided by the central authority.

But it can create situation like.

1 No incentive for people to do hard work.It does not motivate the people to work hard.

2.No consumers choice as they are compelled to buy what is produced.

3.Bureaucracy.All economic activities are controlled by bureaucrats,That will lead to delay in work as they are paid workers.

4.No equality of income.Although socialism aims at equality of income skilled workers get more wages as compared to unskilled workers.

No economic system free from defects. But both works in the world with some modifications.