January 29, 2022
Capitalism Socialism Mixed Economy

Capitalism, Socialism, & Mixed Economy: 3 Types of Economy, Features, Merits and Demerits

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In this article we will discuss about:- 1. Capitalism 2. Socialism 3. Mixed Economy 4. Characteristics 5. Merits 6. Demerits! (With Characteristics, Merits and Demerits)

The analysis of economic systems traditionally focused on the dichotomies and comparisons between market economies and planned economies and on the distinctions between capitalism and socialism. Subsequently, the categorization of economic systems expanded to include other topics and models that do not conform to the traditional dichotomy.

Type Of Economy

Type Of Economy Capitalism, Socialism, & Mixed Economy
Type Of Economy

1) Capitalism Economy

A capitalist economy is an economy in which productive resources are owned by private individuals who used the resources to earn profits and in which the state intervention is minimum so that economic activities are most unplanned and uncoordinated. A capitalist economy is also known as a free enterprise economy, free-market economy, and laissez-faire economy.

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Pyramid of Capitalist System  under Capitalism
Pyramid of Capitalist System

Features of capitalism

1) Private property,
2) Freedom of enterprises and occupation,
3) Freedom of choice for consumers,
4) Price mechanism (based on demand and supply),
5) Invisible hand concept was given by Adam Smith (government intervention, law, and order),
6) Cut throat competition,
7) Profit motive/ self-interest,
8) Minimum government interference.

Merits of Capitalism:

1) Spirit of the enterprise ( profit motive),
2) Incentive for technology progress,
3) New consumer goods,
4) Flexibility & adaptability,
5) Economic freedom,
6) Expansion of International trade.

Demerits of Capitalism:

1) Inequality of Income and Wealth,
2) Class struggle,
3) Economic Instability (overproduction, underproduction),
4) Misallocation of resources,
5) Emergence of monopoly power,
6) Neglect of social welfare.

2) Socialism Economy

proposed by Karl Marx, it is an economic system in which the means of production are owned by the entire society and operated by the public authority according to a general economic plan for the benefit of the entire community > first soviet Russia (socialist) was the first country to establish a socialist (communist China) economy. Most of the east European countries adopted the communist system after the second world war.

Features of Socialism

1) Socialist ownership of productive resources (i.e. land, mines),
2) Economic planning replace price mechanism,
3) Social welfare as a motivating force,
4) Economic equality,
5) Classless society,
6) Elimination of compensation.

Merits of Socialism

1) Better allocation of resources,
2) Full utilization of resources,
3) Elimination of economic stability,
4) Equitable distribution of income,
5) Elimination of class struggle,
6) Provision of social security,
7) Production of more useful goods, railway, etc.

Demerits of Socialism

1) Loss of efficiency,
2) Loss of incentive,
3) Loss of consumer’s sovereignty/ freedom,
4) Concentration of economic and political power,
5) Loopholes in the planning process.

Capitalist Economy Vs Socialist Economy

Ownership of AssetsMeans of production owned by private individuals Means of production owned by government or cooperatives
Income EqualityIncome determined by free-market forcesIncome equally distributed according to need
Consumer PricesPrices determined by supply and demandPrices set by the government
Efficiency and InnovationThe free market competition encourages efficiency and innovation Government-owned businesses have less incentive for efficiency and innovation
HealthcareHealthcare provided by the private sectorHealthcare provided free or subsidized by the government
TaxationLimited taxes based on individual incomeHigh taxes necessary to pay for public services
capitalism vs socialism

3) Mixed Economy

In this both Capitalist and Socialist are present.

Features of Mixed Economy

1) Co- existence of public-private sector,
2) Co-existence of capitalist & socialist,
3) Economic planning,
4) Regulation & control of private-sector,
5) Promotion of social welfare,
6) Price mechanism,
7) Profit motive.

Merits of Mixed Economy

1) Economic stability,
2) Proper allocation of resources,
3) Check on the concentration of economic power,
4) Economic & political freedom.

Demerits of Mixed Economy

1) Conflict between two sectors,
2) Short-lived,
3) Poor performance of the public sector,
4) Excessive regulations,
5) Inefficient of operations,

Sequence wise according to their existence Capitalist System> lassiez faire> communism> Socialist.

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