Definition and Meaning of Economic Systems | 4 Types of Economic Systems

Fri, 04/24/2009 - 20:25 -- Umar Farooq

Definition of Economic Systems

According to Loucks definition of economic system is that it consist of those institutions which a given people or nation or group of nations has chosen or accepted as the means through which resources are utilized for the satisfaction of human wants.

According to Gruchy, It is an evolving pattern or complex of human relations which is concerned with the disposal of scarce resources for the purchase of satisfying various private and public needs for goods and services.

What is Economic System

To understand meaning of  economic systems, it refers to the role or model of distribution and production which take place in the society. Business is considered as an organized economic activity. The primary objective of any business is to product and sale goods or services. It exists to serve people living in the society with differ means. There are some questions which a economic system must answer:

  • What to product and service to provide
  • The organized of both the production and services
  • What are the methods to distribute products and services

Everyone knows that resources are limit and must be utilized in a manner to get maximum output. In country people must decide what to produce and also define the quantity. This decision involves many factors like development level of a country, resource available, prevailing culture and economic and social status of individuals in society.

Types of Economic Systems

There are four types of economics systems namely

  • Capitalism or Private Enterprise Economy
  • Socialism
  • Communism
  • Mixed Economy or Government and Private Sector

Capitalism

Capitalism is one of economic systems in which means of production are owned and managed by private individuals and institutions. They are at liberty to use any technique of production and produce anything they like. State is to take care of only internal and external security of the country. Normally the activities related to Defence, Police, administration and Courts of Justice are controlled by the Government. Read More

Socialism

Socialism is that part of economic systems which the means of production are owned and managed by the State. Private ownership of means of production is not allowed. People can have personal property which is transferable and inheritable. The anti-social activities like smuggling and hoarding find no place in socialism. Economic activities are planned with the motive of social benefit by a central planning authority. Read More

Communism

Communism is a part of economic systems, where means of production are controlled and managed by a Central State authority, and there is also a restriction on the ownership of personal property communism. Individuals are assigned work by the State and they are given a bit remuneration of their services. People get ration from Government department. People do not have choice of their own. Read More

Mixed Economy

Mixed economy is a part of economic systems which combines in itself the features of Capitalism and that of the Socialism. Unlike a pure capitalistic economy, it has an important public sector i.e. a number of industries are owned and managed by the state. Private enterprise is allowed and even encouraged to operate a large number of industries and to own the various means of production. Thus in a mixed economy, the public and private sectors exists side by side. Read More

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