Assignment on Economic System

Topics: Economic system, Market economy, Planned economy Pages: 6 (1833 words) Published: September 18, 2012
An economic system is the combination of the various agencies, entities (or even sectors as described by some authors) that provide the economic structure that defines the social community. These agencies are joined by lines of trade and exchange along which goods, money etc. are continuously flowing. An example of such a system for a closed economy is shown in the flow-diagram. The economics system involves production, allocation of economic inputs, distribution of economic outputs, landlords and land availability, households (earnings and expenditure consumption of goods and services in an economy), capitalists, banks (finance institutions) and government. It is a set of institutions and their various social relations. The Four main kinds of Economic Systems are:-

 1. Traditional Economic Systems,
2. Market Economic Systems
3. Command Economic Systems
4. Mixed Economic Systems
1) Traditional Economic Systems:
An economic system under which people produce just enough goods to feed their households with very little left for sale or for exchange in the market.
 Characteristics of Subsistence Economic Systems:
a) Production is geared towards subsistence (the family) and basic survival. b) Trade is mainly by a barter system (direct exchange of goods and services). c) Market and money are of little importance

d) Custom and traditions are major influences on what is produced and how products are allocated. Examples:
i) Aborigines
ii) Amazon Tribes
The main advantage of traditional economy is that this type of economics produces only those goods and services which are required for the survival or which they want to consume. Hence there is no surplus or wastage and hence it does not waste resources for goods and services which are unnecessary. Also in this economy people know exactly what their roles or job is and hence there is no duplication of effort. Disadvantage:

However it suffers from certain disadvantages like this type of economy resist any changes because they tend to think that methods and procedures which are followed by their ancestors for generations are correct and hence which in turn leads to lower productivity thus leading to lower development of the society or country as a whole. Also due to this lower productivity people have lower standard of living than other economies which does not follow traditional economics. Also in this type of economies people have to do job which they are told to do but which they don’t like and hence it also lowers their productivity. 2) Market Economic Systems:

Under capitalist economic systems, decisions about what, how, and where to produce a particular good are determined by market conditions such as supply, demand and price. Examples:
i) USA
ii) Japan
 Characteristics of Market Economic System:
A market economy has seven main characteristics:
i) People buy what they want, but only if they can pay for it; ii) Money becomes necessary for life;
iii) People are forced to do anything and to sell anything in order to get money; iv) Maximizing profit rather than satisfying social needs is the aim of all production and investment; v) Discipline over those who produce the wealth of society is no longer exercised by other people (as in slavery and feudalism) but by money and the conditions of work that one must accept in order to earn money; vi) Rationing of scarce goods takes place through money (based on who has more than others) rather than through coupons (based on who has worked harder or longer or has a greater need for the good); and vii) Since no one is kept from trying to get rich and everyone is paid for what they do, people acquire a sense that each person gets (and has gotten) what he deserves economically, in short, that both the rich and the poor are responsible for their fates.  Advantages of Market Economic System:

Whether the society is developed or underdeveloped, a market economy has several important...
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