Economic System

(Global Economic System)

What is an economic system?

An economic system is a system of production, resource
allocation, and distribution of goods and services in
a society or a given geographic area.
It includes the combination of the various institutions,
agencies, entities, decision-making processes, and patterns
of consumption that comprise the economic structure of a
given community. As such, an economic system is a type
of social system.

How economic system works?

All economic systems have 3 basic questions to ask: what to
produce, how to produce and in what quantities,
and who receives the output of production.

What is a global economic system?

The world economy or global economy is the economy of
the world, considered as the international exchange of goods
and services that is expressed in monetary units of account
(money).
In some contexts, the two terms are distinguished: the
"international" or "global economy" being measured
separately and distinguished from national economies while
the "world economy" is simply an aggregate of the separate
countries' measurements.

List of Important economic systems

Capitalism: Free market Economic System e.g USA, Japan
Communism: a system in which all economic and social
activity is controlled by a single political party. e.g North
Korea
Socialism: An economic system of social organization that
advocates that the means of production, distribution, and
exchange should be owned by the community as a whole e.g
Cuba

Contd.
Feudalism: Type of system organized on the basis of rank or
family status e.g Interior Sindh
Fascism: System with the basis of a powerful leader dening
opposition e.g Nazi Germany
Religious economic system: Example is of Islamic
Economic System where Religious teachings interpret the
trade ethics. Here Interest is abolished and distribution of
wealth takes place by implication of zakat tax.

Capitalism
Today the world largely operates under a global economic
system based on the free market mode of production( as
shown in map).
The economic system in which most businesses are owned
and operated by individuals is the free market system, also
known as capitalism.
In a free market,competitiondictates how goods and
services will be allocated. Business is conducted with only
limited government involvement. The economies of the
United States and other countries, such as Japan, are based
on capitalism.

Contd.
In a capitalist economic system Production is carried out to
maximize private profit.
Decisions regardinginvestmentand the use of the means of
production are determined by competing business owners in
themarketplace.
Production takes place within
theprocessofcapitalaccumulation.
The means of production are owned primarily by private
enterprises and decisions regarding production and
investment determined by private owners incapital markets.

Advantages
It leads to better use of resources because
in this form of economic system a greater
efficiency implying much more profits.
It encourages entrepreneurship because
people can set up easily their own
business.
People have to work hard if they want to
survive whereas in case of socialist
economy government provides amenities
to people

Disadvantages
Biggest drawback of this system is
that private companies become so big
that they become a monopoly in their
field which leads to exploitation in
terms of price or service of product.
In this system poor people are hit the
hardest because the gap between the
rich and poor keep rising.