ECONOMIC SYSTEMS

 

ECONOMIC SYSTEMS

1. What is an Economy?

Man can fulfill his material, non-material, economic, social and political, needs within society, that's why man is called “Social Animal.” She/he has to fight for his protection and defense that's why he seeks co-operation and help from his relatives and friends. For this purpose political organization established is called “Government”. He has to satisfy his social needs also. Human being has economic needs e.g. food, shelter, heath, education and recreation etc., and for the satisfaction of these needs he is dependent upon society, because no one can be self-sufficient he has to take part in economic struggle with the help of others, and when people take part in economic and social struggle collectively, they form many social relations which is called “Economic Organization.” This economic organization named as “Economy” or “Economic system.” Thus Economic system means: “such an economic organization in which we utilize all natural, artificial and human resources of a country to produced goods and services.” Each economic system has some natural resources like land, mineral, substances, woods, sea etc where as some resources are made by human efforts and struggle, for example: machinery, tools, dams, buildings, cars etc.

 “Main Problems of an Economy”

 In any economic system basic problems are as under: What to Produce: Though resources are natural or artificial they have alternative use that's why different factor scan be used to produce different goods and services. So in any economic system it has to be decided that resources should be allocated to produce which goods and services. In other words the problem of resource allocation is discussed. Each economic system adopts its own methods to resolve this issue, for example: the decision of resources allocation is in the hands of government or any authority under centrally controlled economy. Whereas this issue is resolved through price mechanism in capitalism so in any economic system, production of goods and services is the basic problem.

How much to Produce?

 When the decision is made about the production of goods and services then it has to be decided how much the required commodity should be produced. Whether the consumer while making decision the demand of commodity and stock of capital should be taken in view, the things which have more demand are produced at large scale whereas, the things having less demand should be produced at small scale. While making decision it should be considered that how much resources should be utilized currently and how much to be left over for the future purposes. Generally that quantity is determined which maximizes entrepreneur's profit. At this output firm's MR is equal to

 MC MC – MR

 How to Prada’s?

 Another important issue is to choose method of production. As commodities can be produced by alternate methods e.g. land can be ploughed and also cumulated with the help of tractors, ice factory can be impelled by electricity or diesel etc. Generally there are three methods of production

 (i) Labor Intensive Method

 (ii) Land Intensive Method

(iii) Capital Intensive Method

That method would be adopted which is cheap and annexed production. It should be taken in view whether production would be made for different regions of country or to spread the net of industries in all over the country, moreover, monopoly should be encouraged or small private investors may be given incentives. Method should be flexible couch to be molded according to the changing circumstances of the economy

 4) For Whom to Produce?

 Another significant issue is that the production should be made for the specific class or for all consumers. Then how to distribute it in different sectors of the economy so that each individual may get his proper share. The shore of public and private sectors should also be determined. For the solution of the above mentioned problems. Different economic systems were introduced in the world in different time periods some of those are discussed as under

 (i) Laissez faire economy.

 (ii) Centrally controlled economy

(iii) Modern Capitalism or Mixed Economy,

 (iv) Economic system of Islam.

 1. Laissez Fair Economy:

In this system people have freedom in economic activities and government does not intervene in their economic struggle. Government is responsible for maintenance of peace and integrity of country. People in their individual capacity of the custodian of land, capital and other resources, and they can use them in any way. They are altogether free for investment and resource allocation, they can produce things according to their own desire, chooses, business and occupation according to their choice. Everyone has freedom to spend his income as he/she desires. No matter whether he saves or not government has any right to object any person to keep, sell or divide his property among his heirs. But the only thing to be considered is that all the decisions must be according to law and order. It is also called capitalism. Laissez fair economy was neither implemented at its extreme condition, now it was introduced in its complete form. Anyhow, to some extent this system was forced in Great Britain by the mid of 19" Century.