Types of Economic System

■ Capitalist Economy

The main characteristics is the existence of private enterprise in the main sphere of production. USA, Britain, France etc are the countries having Capitalist Economy. Adam Smith is the father of Capitalist Economy. A capitalist economy is an economy in which the means of production are privately owned and operate for profit. A capitalist economy is a type of economy that produces consumer goods that are sold profitably in the domestic or foreign markets. In a Capitalist Society, the distribution of goods produced among the people is based on purchasing power (the ability to purchase goods and services).

The economic system in which production and distribution were controlled by private individuals for the purpose of profit was known as Capitalism. In such an economy, the market would coordinate all economic activities. Therefore, they are also called as Market economies. In such economies, the price system or market system solves basic economic problems. Capitalism tends to concentrate money in the hands of a few individuals.

Characteristics of Capitalist Economy

1. Freedom for entrepreneurs to produce any products.

2. Private Property rights

3. Profit Oriented Activity

4. Inheritance Wealth Transfer Method

5. A free market without Price Controls

6. Competition among entrepreneurs to sell products.

Advantages of Capitalism

1. Efficient Resource Allocation

2. Social Mobility

3. Technological Progress

4. Global Economic Growth

5. Quality Improvement

6. Adaptability and Flexibilty

Disadvantages of Capitalism

1. Income Inequality

2. Environmental Degradation

3. Unfair Economic or Competitive Advantage

4. Lack of Social Safety Nets

5. Monopoly behaviour

6. Short term Focus

7. Economic Inequality

8. Greed

9. Exploitation of Labour

■ Socialist Economy

The main characteristics is the existence of public enterprise or state ownership of capital in all the important spheres of productive activity. Karl Marx is the father of socialist economy. Economic equality is the hallmark of socialism. Socialism organises society in such a way that all means of production and distribution are brought under public ownership. The term socialism primarily refers to theories that promote economic equality.

A socialist economy is an economy in which the means of production are publicly owned and operates based on centralized planning. The price system is not important in a socialist economy. Cuba, China etc. are examples for Socialist Economy. In a socialist economy, the government decides which goods to produce according to the needs of society. The government decides how goods are produced and how they are distributed. In socialism, distribution is based on people's needs, not what they can afford. Unlike Capitalism, a socialist country provides free healthcare to its citizens.

Characteristics of Socialist Economy

1. Work aimed at public welfare

2. Lack of private entrepreneurs

3. Lack of private property rights and Inheritance wealth transfer method

4. Economic Equality

■ Communist Economy

It is a classless economy and in which people work according to the principle from each according to his ability, to each according to his needs. China, Cuba, Vietnam, North Korea are the countries having communist economy. The constrution and related ownership are common to a community and are not shared to private individuals or anyone else. Due to this, wealth is not confined to the hands of private individuals, but is transferred to all in society according to their needs. This is the basic principle of communism. The word communism is derived from the latin word 'Communis'. Karl Marx was the first to scientifically think about the creation of a communist system. His theories and the later additions to them are known as Marxism.

■ Mixed Economy

An economy with a mixture of state and private enterprises is called as Mixed Economy. Most actual economies are mixed. The economy existed in India is Mixed Economy. Adam Smith is the father of mixed economy. A mixed economy is an economy that combines some features of a capitalist economy and a socialist economy. In a mixed economy, the market will provide the goods and services that can be produced and the government will produce and distribute the necessities that the market cannot provide. Most countries today have mixed economy, where the government and the market work together to find answers to the questions of what to produce, how to produce it, and how to distribute what is produced. Industrial economy existed in India during British rule.

Characteristics of Mixed Economy

1. The public sector and the private sector co-exist

2. Working according to Economic Planning

3. Government protection of labour

4. Giving importance to welfare activities

5. Freedom of private property rights and economic control coexist

6. Consumers Sovereignty protected

7. Role of price system and government directives

8. Government regulation and control over private sector

9. Reduction of Economic inequalities

Advantages of Mixed Economy

1. Proper allocation of resources

2. Competitive innovation

3. Education and healthcare facilities

4. Collaborative working

Disadvantages of Mixed Economy

1. Policy Shifts

2. Inefficiency in services

3. Corruption risk

4. Complex decision-making