ECO162: Chapter 1: Economic System
Capitalist economic system Socialist economic system
Basic Private Sector
characteristic
Characteristics 1. The resources are owned by
private sectors.
2. Individual firms are free to
make economic decisions.
Advantages 1. Consumers have freedom of
choice
2. People have the right to own
their own wealth.
3. Efficiency in the use of
resources.
4. Encourage technological
development and innovation.
5. Unlimited individual
entrepreneurship.
1. Unequal income distribution
Disadvantages between the rich and the poor
2. High unemployment
problems.
3. Creating a materialistic
society.
4. Creating an unstable
economy.
Mixed economic system
Public sector
1. The resources are owned by
the public sectors.
2. Government makes all
economic decisions.
1. Equal income distribution
between the rich and the poor.
2. Low unemployment
problems.
3. No materialistic society.
4. Creating a stable economy.
5. Avoid large corporate
monopoly power.
1. Consumers have no
freedom of choice
2. People do not have the
right to own their own wealth.
3. Inefficiency in the use of
resources.
4. Not encourage technological
development and innovation.
Islamic economic system
Private + Public sector
1. The resources are owned by
private and public sectors.
2. Individuals and firms can make
economic decisions.
1. Consumers have freedom of
choice
2. Equal income distribution
between the rich and the poor.
3. People have the right to own
their own wealth.
4. Low unemployment problems.
5. Unlimited individual
entrepreneurship.
Private + Public sector –
according to Islamic principles
Basic Principles:
1. Tauhid
-There is no God to be
worshiped except Allah
SWT.
2. Ukhuwwah
-Concept of
brotherhood.
3. Rububiyyah
-Believe that Allah
alone is the Creator
and the Most Powerful.
4. Khalifah
-We are created as
trustees and always to
be in servitude to Allah
SWT by Shariah.
5. Tazkiyyah
-Purification of man’s
wealth
-Aims to help poor
(Zakat and sadaqah)
ECO162: Chapter 1: Economic System
5. Creating large corporate
monopoly power.
How to solve 1. What and how much to
basic produce?
economic -Depends on consumers’
problems
demand
2. How to produce?
-Based on the cheapest
method of production.
3. For whom to produce?
-Depends on the society’s
purchasing power
5. Limited individual
entrepreneurship.
1. What and how much to
produce?
-Controlled by the
government through
central planning
2. How to produce?
-Government will decide on
methods of production with
least cost methods.
3. For whom to produce?
-Government will serve
basic needs first before
luxury goods.
1. What and how much to 1. What and how much to
produce? produce?
-Determined by market -Through principles of
demand and supply. Shariah in the Quran and
Sunnah.
2. How to produce?
-The most efficient and
cost-effective method. 2. How to produce?
-The most efficient and
cost effective method that
3. For whom to produce? is still based on Shariah.
-Depend on the society’s
needs and income
distribution. 3. For whom to produce?
-The need of the poor
should come first.
-Not ignoring the need of
rich.