What is Economic System?
Economic System refers to the accepted process by which labor, capital, and natural resources are organized to produce and distribute goods and services in a particular region or demography.
It is the social institution through which goods and services are produced, distributed, and consumed.
Understanding Economic System
Countries transfer commodities and sell products and services through economic systems. The five economic variables, capital, entrepreneurs, physical resources, and information resources—are managed by them.
In plain English, these production determinants include the number of workers and available funds a business has and accessibility to entrepreneurs—people who wish to operate enterprises or launch their own.
Including the information and knowledge businesses rely on to succeed, the tangible assets and resources required to operate a firm are also elements in the production. Present economic systems have different perspectives on how these characteristics should be used.
Types of Economic Systems
The type of economic system is determined by how limited resources are shared within an economy. Economic systems are essentially divided into three types -
- Market Economy: Instead of being governed by a national or local authority, prices are set by quantities of rising prices in this place. What is produced, how much of it is manufactured, how it is dispersed, as well as the price of products, are all determined by market forces.
- Planned Economy: A central authority—typically the government—makes all decisions related to manufacturing, transportation, wages, investments, and taxes. North Korea and Cuba are the two nations that now appear similar to this sort of economy.
- Mixed Economy: Both socialism and free-market elements are included in a mixed economy. Another name for it is a dual system. Nowadays, most nations have a mixed economic structure that includes both public and private sectors.
Practical Example
The economic system in the US is capitalism because the economic system is built on profit-seeking and market rivalry, and its assets and productive capacity are privately run by both individuals and businesses. They can run their businesses effectively as a result.
Additionally, it gives them the motivation to maximize earnings. The proprietors of companies are the stockholders. The amount of stocks they possess determines how much influence they have. An executive board is chosen by the stakeholders, and senior executives are hired to run the business.
In Sentences
- A nation's or a territory's economic system is how communities or authorities manage and share the assets, commodities, and supplies that are available in that area or nation.