Economic system

The economic system is a system for producing, distributing and consuming goods and services. Goods are things that you can touch or feel, like an iPod, sneakers, books, or computers. Services are things people can do for other people, like babysitting, teaching, cleaning, or walking someoneís dog. Two major economic systems are socialism and capitalism. An example of capitalism is the United States. Capitalism consists of private citizens owning all basic and non-basic industries. Basic industries make things like food, clothing, shelter, and transportation. Non-basic industries make things like Mp3 players, computers, game boys, or television sets. The difference between basic and non-basic industries is want and need. Basic industries make things that people need. Non-basic items are things people donít need, but want. Non-basic industries are luxury items. In a capitalism country, the owners of a company decide how much to pay the workers, and what to do with the money. An example of a socialist country is Vietnam. In a socialist country, the government owns all of the non-basic industries, and private citizens own private industries. The down side to socialism is that there is no competition in the basic industries, and therefore prices can be raised, and quality can suffer. In a socialist country, the government decides what to pay workers in the basic industries, and what to do with the money. The owners of the non-basic industries decide what to pay the workers and what to do with the money. An economic system is the combination of the various institutions, agencies, consumers, entities (or even sectors as described by some authors) that comprise the economic structure of a given society or community. It also includes how these various agencies and institutions are linked to one another, how information flows between them, and the social relations within the system (including property rights and the structure of management). A related concept is the mode of production. The economic system involves production, allocation of economic inputs, distribution of economic outputs, land availability, households (earnings and expenditure consumption of goods and services in an economy), financial institutions and government policies. It involves a set of institutions and their various social relations. Alternatively, it is the set of principles by which problems of economics are addressed, such as the economic problem of scarcity through allocation of finite productive resources.[1] An economic system is composed of people, institutions, rules, and relationships. For example, the convention of property, the institution of government, or the employee-employer relationship. Examples of contemporary economic systems include capitalist systems, socialist systems, and mixed economies. Among actual economic systems, distinctive methods of analysis have developed, such as socialist economics and Islamic economic jurisprudence. Today the dominant form of economic organization at the global level outside of communist systems is based on mixed economies.[2] Economic systems is the economics category that includes the study of such systems. It includes comparative economic systems as a subfield.

Components There are multiple components to economic systems. Decision-making structures of an economy determine the use of economic inputs (the means of production), distribution of output, the level of centralization in decision-making, and who makes these decisions. Decisions might be carried out by industrial councils, by a government agency, or by private owners. Some aspects of these structures include: Coordination mechanism: How information is obtained and used to coordinate economic activity. The two dominant forms of coordination include planning and the market; planning can be either centralized or de-centralized, and the two mechanisms are not mutually exclusive. Productive property rights: This refers to ownership (rights to the proceeds of output generated) and control over the use of the means of production. They may be owned privately, by the state, by those who use it, or held in common by society. Incentive system: A mechanism for inducing certain economic agents to engage in productive activity; it can be based on either material reward (compensation) or moral reward (social prestige).[3] [edit]Types Marxist-Leninist Communist states (red) and formerly Communist-run (orange) countries of the world. There are several basic questions that must be answered in order for an economy to run satisfactorily. The scarcity problem, for example, requires answers to basic questions, such as: what to produce, how to produce it, and who gets what is produced. An economic system is a way of answering these basic questions, and different economic systems answer them differently. Many different objectives may be seen as desirable for an economy, like efficiency, growth, liberty, and equality.[4] Economic systems can be divided by the way they allocate economic inputs (the means of production) and how they make decisions regarding the use of inputs. A common distinction of great importance is that between capitalism (a market economy) and socialism (economic planning). In a capitalist economic system, production is carried out to maximize private profit, decisions regarding investment and the use of the means of production are determined by competing business owners in the marketplace; production takes place within the process of capital accumulation. The means of production are owned primarily by private enterprises and decisions regarding production and investment determined by private owners in capital markets. Capitalist systems range from laissez-faire, with minimal government regulation and state enterprise, to regulated and social market systems, with the stated aim of ensuring social justice and a more equitable distribution of wealth (see welfare state) or ameliorating market failures (see economic intervention). In a socialist economic system, production is carried out to directly satisfy economic demand by producing goods and services for use; decisions regarding the use of the means of production are adjusted to satisfy economic demand, investment (control over the surplus value) is carried out through a mechanism of inclusive collective decision-making. The means of production are either publicly owned, or are owned by the workers cooperatively. A socialist economic system that is based on the process of capital accumulation, but seeks to control or direct that process through state ownership or cooperative control to ensure stability, equality or expand decision-making power, are market socialist systems. The basic and general economic systems are: Market economy ("hands off" systems, such as Laissez-faire capitalism) Mixed economy (a hybrid that blends some aspects of both market and planned economies) Planned economy ("hands on" systems, such as state socialism or state capitalism) Traditional economy (a generic term for older economic systems) Command (Centrally Planned) Economic Systems: (a generic term for older economic systems) Participatory economics (a system where the production and distribution of goods is guided by public participation) Gift economy (where an exchange is made without any explicit agreement for immediate or future rewards) Barter economy (where goods and services are directly exchanged for other goods or services)

Types of socialist systems Economic systems can be subdivided by their coordinating mechanism (planning and markets) into planned socialist market socialist systems. Additionally, socialism can be divided based on the ownership of the means of production into those that are based on public ownership, worker or consumer cooperatives and common ownership (i.e., non-ownership). Communism is a hypothetical stage of Socialist development articulated by Marx as "second stage Socialism" in Critique of the Gotha Program, whereby economic output is distributed based on need and not simply on the basis of labor contribution. The primary concern for socialist planned economies is to coordinate production to directly satisfy human needs/economic demand (as opposed to generate profit and satisfy needs as a byproduct of pursuing profit), to advance the productive forces of the economy while being immune to the systemic inefficiencies (cyclical processes) and crisis of overproduction that plagues capitalism so that production would be subject to the needs of society as opposed to being ordered around capital accumulation.[5][6] In orthodox Marxism, the mode of production is tantamount to the subject of this article, determining with a superstructure of relations the entirety of a given culture or stage of human development.