Definition of Economic Systems

According to Loucks definition of economic system is that it consists of those institutions which a given
people or nation or group of nations has chosen or accepted as the means through which resources are
utilized for the satisfaction of human wants.
According to Gruchy, it is an evolving pattern or complex of human relations which is concerned with the
disposal of scarce resources for the purchase of satisfying various private and public needs for goods and
services.

What is Economic System

To understand meaning of economic systems, it refers to the role or model of distribution and production
which take place in the society. Business is considered as an organized economic activity. The primary
objective of any business is to product and sale goods or services. It exists to serve people living in the
society with differ means. There are some questions which an economic system must answer:
 What to product and service to provide
 The organized of both the production and services
 What are the methods to distribute products and services?
Everyone knows that resources are limit and must be utilized in a manner to get maximum output. In
country people must decide what to produce and also define the quantity. This decision involves many
factors like development level of a country, resource available, prevailing culture and economic and social
status of individuals in society.

Types of Economic Systems

There are four types of economics systems namely

 Capitalism or Private Enterprise Economy

 Socialism
 Communism
 Mixed Economy or Government and Private Sector

Capitalism
Capitalism is one of economic systems in which means of production are owned and managed by private
individuals and institutions. They are at liberty to use any technique of production and produce anything
they like. State is to take care of only internal and external security of the country. Normally the activities
related to Defense, Police, administration and Courts of Justice are controlled by the Government.

Socialism
Socialism is that part of economic systems which the means of production are owned and managed by
the State. Private ownership of means of production is not allowed. People can have personal property
which is transferable and inheritable. The anti-social activities like smuggling and hoarding find no place
in socialism. Economic activities are planned with the motive of social benefit by a central planning
authority.

Communism
Communism is a part of economic systems, where means of production are controlled and managed by a
Central State authority, and there is also a restriction on the ownership of personal property communism.
Individuals are assigned work by the State and they are given a bit remuneration of their services. People
get ration from Government department. People do not have choice of their own.

Mixed Economy
Mixed economy is a part of economic systems which combines in itself the features of Capitalism and that
of the Socialism. Unlike a pure capitalistic economy, it has an important public sector i.e. a number of
industries are owned and managed by the state. Private enterprise is allowed and even encouraged to
operate a large number of industries and to own the various means of production. Thus in a mixed
economy, the public and private sectors exist side by side.