1. There is private ownership of the major means of production such as land and capital.
  2. There is freedom of choice. That is producers and consumers can make decisions on what, where and for whom to produce and consume.
  3. Production is aimed at profit maximization i.e. for self interest resources.
  4. Reliance and price mechanism as a means of allocating resources. Under capitalist economy all problems of what is to be produced where to produce and for whom to produce are answered by the price mechanism.
  5. There is limited role by the government.i.e the government has little intervention over the allocation of the economic resources.
  6. Competition. Under capitalist economy there is free entry of firms in production. These firms compete for resources and market. Such competition results to the increase in efficiency in production.
  7. There is existence of classes. Under this system the society is divided into classes. That is the class of haves and have not i.e. the haves are those who own the major means of production and they have not are those who do not own the major means of production.

ADVANTAGES OF CAPITALIST ECONOMIC SYSTEM

  1. Greater freedom of choice (consumer sovereignty).

This means that consumers are seeking to maximize their utilities, having the freedom to make choices from wider range of goods and services.

  1. Competition may result into the increased efficiency in production i.e. to produce goods of high quality to win the competition.
  2. Low burden to the government.

In this system, the government takes very few responsibilities in the provision of essential services.

  1. High private initiatives. There are high motives to produce by private producers because of private profit, freedom of ownership and freedom of production.
  2. Proper allocation of the resources.

Price mechanism eliminates possible in is allocation of resources as producers use their resources to produce only goods wanted by the societies or consumers, unlike in the socialist economy, where production of goods produced may not be wanted by the people due to poor planning.

DISADVANTAGES OF CAPITALIST ECONOMIC SYSTEM

  1. Exploitation is dominant.

Poor people are de-private of all means of survival and are forced to sell their labor power to the capitalists who exploit them by paying them with low wages.

  1. It leads to the economic and social crisis.

The economic system is not planned as the result it is frequently affected by economic instabilities like inflation, depression, over production, unemployment etc.

  1. It leads to wastage of resources.

Extreme competition behaviors of firms results in misapplication of resources, hence overproduction or harmful production etc.

  1. If leads to distortion in consumer’s choices. Consumer’s choices may be distorted by persuasive advertising, in which consumers may buy commodities of sub-standard due to the convincing power of the suppliers i.e. through under advertisement.
  2. Welfare of the majority is endangered.

Firms under this system compete to maximize profits. Under profit motives they often use resources to produce luxury goods instead of public goods. E.g. health services, education, e.t.c, which promote the living standard of people.

  1. Existence of classes.

That is the rich and poor classes. The classes exist due to unequal access to the major means of production.

MIXED ECONOMIC SYSTEM

Mixed economic system refers to the type of economic system which involves both public and private ownership of the major means of production like capital, land and other related means of production. Therefore decisions on important economic issues involve some forms of planning by private as well as public enterprises and interaction between the government business and labor through market mechanism.

FEATURES OF MIXED ECONOMIC SYSTEM

  1. Some resources are owned by individuals and some are owned by government.

Decisions regarding production

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There is private ownership of the major means of production such as land and capital. There is freedom of choice. That is producers and consumers can make decisions on what, where and for whom to produce and consume. Production is aimed at profit maximization i.e. for self interest...