Advantages and Disadvantages of different economic systems
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Published: Mon, 5 Dec 2016
What is economics? Economics is can say as branch of social science that read the production distribution and consumption of goods and service. Definition of economics and associated terms such as scarcity, choice , house hold, goods, consumption, production, and ceteris paribus.
When we talk about Economics system, economics system it is are way to studies the method and institution by which societies determine the ownership, direction, and allocation of economics resources. They are three types of economics system is socialist system, capitalist system, mixed economics.
The three economics system.
Can tell as centrally planned or command economies. This system are fully controlled by government its mean the choices about resources are made by and left to the government. This system i
its mean free market economics, this economics system is like freedom economics because the decisions take by the people who in the particular country.
this economy system based on the free enterprise principle, there is some form of direct intervention and control by the government
The question is asking about the mixed economy attempts to combine the advantages of free enterprise system and the central command system
Definition of mixed economy
Mixed Economy can be defined as a form of organization where the elements of both capitalist economy and socialist economy are found.
Simply in such type of economy there is the presence of private economic freedom with centralized planning with a common goal of avoiding the problems associated with both capitalism as well as socialism.
In this system the liberty in the economic activities are influenced by the Government’s regulation and licensing policies. Example like if are new business is coming to the market they must have the license by the government for the particular business to operate in the country. So by this, the government can became a big power in the country.
What is mixed economy?
A “mixed” economy system is a mix combination between socialism and capitalism. a market economy where there is some government intervention although the degree of intervention is important in ascertaining the effectiveness of the price mechanism.
The mixed economy refers to such an economic system wherein two the sector exist and function for achieving national objectives. The two sectors are the public sector and private sector. Both these sectors exist and function for achieving national objectives. Both these sectors make the economic system of the country. In fact the mixed economy is the glad combination of private enterprise with government enterprise on the one side there is freedom of enterprise, private ownership and profit earning. On the other side there is government guidance and control so as to stop evil economic, pressures. An order to remove the impact of the capitalistic economy, mixed economy has been introduced. It prevails in most of the countries of the world.
Mixed economy is help in increasing national production in the country. Both public and private sectors work hard to bring about more production. The problems created by free enterprise and too much public control are solved through mixed economy. It provides freedom of enterprise ownership and profit earning as well as social welfare and political freedom. And all the national recourses are utilized under mixed economy.
Mixed economy is half way house. It is not helpful in access optimal use of national resources. The mixed economy suffers from the disadvantages of both the capitalism and the socialism. Mixed economy seldom achieved progress. It suffers from continues back wardness. Under mixed economy use without thought of different types occurs in the economy.
What is price mechanism?
The price device is a system of determination of prices and resource allocation. It operates in a free market situation where forces of petition and supply mechanism prices. Both producers and consumers base their specific production and consumption plans on the prevailing market price. When consumers pay a price for a commodity, they motivate the producer of that commodity and hence more of the same is produced and vice versa. The price paid becomes a vote for more production.
Prices are determined by shortages and surpluses. Because a shortage of a product causes the price to rise, whereas a surplus causes the price to fall. The price will determine how much of a product a producer decides to supply. If the product price is high then profit is greater and more will be supplied due to producer profit motive. If consumers decide that they want more of a good (or if producers decide to cut back supply), then demand will exceed supply. The resulting shortage causes the price to rise.
The result is that consumers will be discouraged to buy as much whereas producers will be encouraged to supply more. The price of a good will continue to rise until the shortage has been eliminated. The opposite is true if consumers decide that they want less of a good causing the price to fall until the surplus is eliminated. As this process is continued we can see that there is only one price at which there is neither upward nor downward pressure on price. This is termed the equilibrium price and occurs when demand equals supply.
How government interfere
The intervention of the Government can take a number of forms.
Fixing prices above or below the free market equilibrium
Taxing the production or sale of carious goods
Subsidizing the production or sale of various goods
Price control is a clear example where government intervention disrupts the price mechanism. Prices can be effected in a many of ways. A government subsidy will artificially reduce the price of a good and boost demand, an example being certain foodstuffs. Conversely, a government tax or tariff in a good in this way will increase its price to the consumer and decrease demand. This illustrates how government can use the efficiency of the price mechanism to change supply and demand. The reason for their interaction can be based on economic, social or political factors. For instance, tobacco products are taxed very heavily thus artificially raising the price of the product. This reduces demand for cigarettes despite their inelastic nature, thereby benefiting the general health of the population whilst raising substantial revenues for other social programmers.
How does shortage happen?
The reduction in the supply of the item is then termed a shortage. A shortage occurs when a producer cannot or will not produce an item for the current price and alsoa situation in wich quantity demanded is greter then supplied. Consumers are unable to buy allthey want at the going price. Price is below equilibrium and tends to rise to achive balace in the market. A good example of this is what happens during a gas shortage. During the 1970’s, the gas shortage experienced in the US was due to the fact that the oil companies were raising the price of gas and consumers were forced to cut back on the amount that they used due to the high cost.
Government stepped in, established an excess profits tax on the oil companies, and fixed the price of gasoline. The oil companies had plenty of gas in their storage facilities but were unwilling to sell more than a certain amount at the price dictated by the government. Because of this, the market had less gas to distribute to consumers at the government defined price. The results of this were lines to buy gas and rationing.
How does surplus happen?
Its time when are quantity supplied is more than quantity demanded. Price above equilibrium price. People who produce are unable to sell all they want at the going price and price tends to fall to achieve balance in the market. Surplus can say also has a particular thing is not to demand but the supplier supply more and so it’s became access
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