13.

Market Economic
System
 What is an Economic System?
An Economic system describes the way in which an economy is organized and run. It covers the
institutions, organizations and mechanisms in a country that influence economic behavior

 All economies have to answer three fundamental questions

 What to produce?
 How to produce?
 For whom to produce?

 Alternative views on how scarce resources are best allocated

 To what extent should the Government intervene in the economy?

 How much autonomy should the economic agents have?

 Types of Economic Systems
This economic This economic
system relies on the
market forces of
Mark Plan system relies on the
Government to
demand and supply
et ned allocate resources.

med
to allocate

y
resources with
Econ Econ

noix
oM
MINIMAL
Government
omy omy

Ec
intervention

Mixed Economic System – Public Sector

Private Sector  Combination of planned and market refers to
refers to economic economic system economic
activity of private  Resources are shared between private and activity directly
individuals and public sector involving the
firms Their main  Degree of public and private sector Government.
aim is to earn involvement is determined by the Govt. Their main aim is
profits  Essential services provided by public sector to provide a
 Govt. exists to redistribute income and service
wealth
 Private sector meets the needs to consumer

Is India a mixed economy? Explain.

Source: Heritage Foundation “Index of Economic Freedom”
Source: Heritage Foundation “Index of Economic Freedom”
 Market Economic System
 Efficiency
 Consumer is sovereign
 Innovation
 Responsive and dynamic
 Freedom of choice
 No Government regulations
 Customers are free to choose
G&S and careers
 Incentives
 Profit motive
 Boosts economic growth
 Decision by consumers & Pvt. Sector takes into
account only costs and benefits to themselves
and not society leading to market failure
 Consumers pay higher prices for poor quality
goods
 Monopolists might abuse market power
 Income and Wealth inequalities
 Production is geared to meet the wants of the
wealthy
 Environmental issues
 Resource depletion and Pollution
 Social hardship
 Public goods might be underprovided
 Education & healthcare underprovided
 Wasteful Competition
 Packaging & advertising to gain competitive edge
 Mixed Economic System

 Best of both planned and market  Consumers pay higher prices due
economic systems to profit motive of private sector
 Govt. takes into account all costs and businesses
benefits when making decisions
 Necessary services are provided for  Public sector activities need to be
everyone
 Govt. encourages (or discourages)
funded
consumption of G&S that are beneficial
(harmful)

 Most G&D are competitively

marketed
 Producers and workers have incentive
to work hard

 Large degree of economic freedom

 Choice for consumers and firms