CAPITALISM

An economic system in which a country’s trade and industry are controlled by private owners for profit,
rather than by a state.

Also called free market economy.

Features:

1. Private property and freedom of ownership: An individual or enterprise will accumulate the
property and use according to its own will. And after the death of owner, property inherited by
his successors.
2. Price mechanism: Price mechanism means the free working of market forces of demand and
supply without any intervention. Producers are also helped by price mechanism in deciding
what to produce, when to produce and how to produce.
3. Profit motive: The foremost objective of such system is to earn profit. All the entrepreneurs
start those businesses which are most profitable.
4. Competition and Cooperation: This economic system is characterized by free competition
because are earning highest profit. Buyers also compete for purchasing goods and services. To
produce goods, workers and machines co-operate so that production continues according to
schedule.
5. Consumer sovereignty: The consumer is the king. Consumer’s taste governs the production
activity.

Challenges:

1. Inequal Income distribution: A major share of income and resources is controlled by the upper
sections of the society, while the others remain deprived basic amenities of life. Thus, the entire
society is divided between ‘haves’ and ‘haves not’.
2. Underemployment and unemployment: A capitalist economy has always some unemployment
because market mechanism is slow to adjust to the changing situations. Also, business
fluctuations result in the labour force going unemployed during depressions. Also, the use of
more machines leads to employment of less labour.
3. Social costs: people are affected by pollution. Also, environment activities get polluted due to
production activities. Labour class isn’t provided with proper homes.
4. Unnecessary multiplicity and too much competition: Due to competition, production costs rise.
Due to prices of costs rice.
 SOCIALISM

It is an economic system in which all the resources are controlled and regulated by the government so
as to ensure welfare and equal opportunity to all the people.

Features:

1. Collective ownership: Resources are owned by the community i.e. government. No private
control involved.
2. Economic, political and social equality: As, all the resources are owned by government.
Government tries to lessen the gap between rich and poor and bring income equality. Therefore,
no class struggle exists.
3. Positive role of Government: Govt. controls all the activities of distribution, exchange,
production and consumption.
4. Social motive: This is the main aim of socialist form of economic system. Government plans
for every strata of society.
5. No Price mechanism: government allocates resources according to social plan. Hence, it
controls the prices.

Challenges:

1. No Cost calculation: There is no way to calculate costs of factors of production involved.

2. Lack of incentives: As in when no personal is involved, there is no inclination towards hard
work and self-improvement.
3. Loss of economic freedom and consumer sovereignty: Buyer is compelled to accept whatever
is produced and pay the prices for same as demanded. Choice of buyers is guessed by centra
planning authority
4. Red- tapism and Bureaucracy: this happens because everything is controlled by bureaucrats.
 MIXED ECONOMY

It is a mixture of socialism and capitalism. Under this system there is freedom of economic activities
and government interferences for the social welfare.

Features:

1. Profit and social motive: Entrepreneurs work for profit and produce goods which are most
profitable for them. Government produce goods to provide them to poor sections of society.
2. Consumer sovereignty: Production of goods according to consumer choices.
3. Private ownership of property is allowed but government works to lessen gap between rich and
poor as sees that wealth isn’t concentrated in hands of few
4. Price mechanism and Price controlled: There is price mechanism for consumer goods. Also,
govt. controls price during shortage to goods.
5. Check on economic equalities: There is a check on economic equalities through progressive
taxation system.

Challenges:

1. Non-cooperation between two sectors: Both private and public sectors are in conflict with each
other. Private sector is imposed a lot of taxes and restrictions. On the other hand, public sector
is given subsidies.
2. Delay in economic decisions
3. Inefficient public sector: This is due to the red-tapism and corruption among bureaucrats.