3 Provisional handout for students of accounting ISCAM Semester I

Unit 3 Different economic systems

3 A What is an economic system?
I. Vocabulary
In the previous units you discussed economic activities.
1. What do you think economic system is?
2. Share your notes with your partner.

II. Reading
Read the text and provide answers to the given questions.

What is an economic system?

As discussed earlier, an economic activity is the work people do in order to earn a living.
The set of all the economic activities of a community, country, etc. is their economic system.
Therefore, the various activities must be interrelated or interdependent in a way that they
preserve the norms of this community or country. In other words, an economic system is a
set of principles on which an economy can run and make decisions about the central
problems it faces whether problems of scarcity of resources or of people’s unlimited wants.
An activity is anything an individual or group of people choose to do in order to provide for
their needs. The choices each community or society make lead to the creation of their type
of economy. Each community or society adopts its own economic systems. Economic
systems vary from community to community, from society to society. These variations turn
to assume the following economic systems: some authors classify them into Traditional
Economic System, Command Economic System, Market Economic System, or Mixed
Economic System; other authors classify them into Capitalism, Socialism, Mixed Economy,
or Islamic Economic System. Clearly, their names may vary and may not be very important.
What is important is what makes them different, the principles or the basis that underlay
them.
The answers from the three basic questions, namely: What should be produced? This refers
to the types and quantity of goods and services. How should it be produced? This refers to
means of production and ownership. For whom should it be produced? This refers to the
relationship between the producer and the consumer.
Adapted and abridged from: www.icsi.edu/The 4 economic systems

Questions
1. What is an economic system?
2. How different is an economic activity from economic system?
3. Who selects an economic system for a community? Justify your answer.
4. How many economic systems are mentioned in the text?
5. Name the economic system used in your community.
6. What is the main focus of an economic system?
III. Speaking
Factory managers very often find it difficult to make decisions about “What should be
produced?”
Situation: You are a factory managers that makes school uniforms. The business hasn’t
been good because of pandemic; students are on quarantine and no one wants uniforms.
Invite the board of directors and persuade them to switch from uniform production to
masks production.

IV. Listening
V. Writing 1
It’s now 10 to 7 a.m. Monday. Two students of ISCAM are talking about the past
weekend.
Madina: Hi Andrieta, how did you spend the weekend?
Andrieta: Oh it was lovely. My parents and I went to Ponta do Ouro to my granfather’s
house. We had a party on Saturday and on Sunday we drove to the beach.
How about you?
Madina: It wasn’t good, I am afraid. I spent the whole weekend studying because of
that stupid mark I had in the English test!

Notice that the underlined verbs in the dialogue are all in the past simple.
We use the past simple to talk about things that happened and finished in the past.
Look at the table below.
Irregular verbs
I/ He/ She/ It was
The weekend was not good.
Madina’s English test lovely.
You/ We/ They were in Ponta do Ouro.
Andrieta’s parents were not

More irregular verbs (they do not change form in all the persons except verb to be)

I/ He/ She/ It did the homework.

The weekend went to Ponta do Ouro.
Madina had a party.
You/ We/ They drove the weekend studying.
Andrieta’s parents spent a poor mark.
 Exercises 1
Complete the table of irregular verbs

Present Simple
He/She/It I/We/ You/They Past Simple Past Participle

is am/are
brings bring brought
become
began
choose
have
hols
given
Thinks
kept
leave

Exercises 2
Use some of the words in the table to complete correctly the sentences below
1. The Jewish and Hebrew economic institutions ________ simple in that time.
2. The ancient civilizations ________definite ideas regarding agriculture and property.
3. Aristotle _________ a valuable contribution on the components of market economy.
4. Thomas Aquinas ____________ more elaborate ideas on economic thought.
5. Merlina didn’t go to school because she _________ it was Saturday.

Exercises 3
Write 3 sentences about what you did yesterday/last weekend.

Writing 2
In the meeting (Refer to Speaking above) with the board of directors important decisions
were taken. Write one or two paragraphs presenting and explaining those decisions.
Unit 3 Different economic systems
3 B Capitalist Economic System
I. Vocabulary
The words and expressions below describe some kind of economic system.
Free market, government intervention, private property, centralized economy,
cooperatives and associations, competitive market, private enterprise firms,
inequalities of wealth, equal opportunity of earning income, laissez-faire,

1. What words or expressions that describe Capitalist Economic System?

2. Share your findings with a partner.

II. Reading
Read the text below and answer the questions that follow it.

Capitalist Economic System

A Capitalist economic system is one which is characterized by free markets and the absence of
government intervention in the economy. In practice a capitalist economy will need some
government intervention, primarily to protect private property. In the real world, many
economies which are viewed to have a capitalist economic system may have government
spending taking up 35% of GDP. This is because the government pays for welfare, health,
education and national defense. However, the economy is still viewed as capitalist because in
the area of private enterprise, firms are free to decide what to produce and for whom. Capitalist
economic systems invariably lead to inequalities of wealth and income. However, it is argued
that this inequality provides an incentive for wealth generation and economic growth. A
Capitalist economic system is often contrasted to a Socialist or Communist economic system
where economic decisions are made centrally by government agencies.
Adapted from: website www.icsi.edu

Questions
1. Define a capitalist economic system in practical terms.
2. Why should there be government intervention in a capitalist economic system?
3. Why should the government need some percentage of the Gross Domestic Product?
4. What is the argument in support of inequalities of wealth and income among individuals?
 Reading 2
Read the text and make a few comments on the given characteristics of Capitalist
economic system.

Characteristics of a capitalist economic system

1. In Capitalism means of production and the resources owned by the business units are not
owned by the government or by cooperatives. They are owned privately, that is by individuals
and households. The institution of private property also covers the right to inheritance. The
institutions of property and inheritance have two strong implications.
2. People acquire a motive for earning more, because they are allowed to keep their earnings
both for current and future use. For this reason, they are always on the look out for opportunities
of increasing their income. In the process, if need be, they are also ready to work hard. The net
result is that a capitalist system is characterised by a high production potential.
3. Private property and inheritance lead to ever-increasing inequalities of income and wealth.
These inequalities, in their turn, result in unequal opportunities of earning an income. The
market prices of various goods and services fail to correspond to their relative worth to the
society. Therefore, a cumulative process develops in which the owners of capital are able to add
to their incomes faster than the workers can add to their incomes, since they have to depend
upon the income from their labour only.
4. Capitalism is also characterised by the policy of laissez-faire on the part of the authorities. The
term laissez-faire means absence of state intervention in the working of the economy. The
solution of the basic problems of the economy is left in the hands of market mechanism. In other
words, the authorities do not try to regulate the prices, demand or supply. The market
mechanism, through the interaction between demand and supply forces, brings about changes
in prices. The prices, in turn, act as signals for individual economic units and guide them in their
respective activities as consumers and producers, etc.
5. In theory, it is usually assumed that the market structure of a capitalist economy is competitive
in nature. In practice, it is possible that while the authorities are following a policy of laissez-
faire, the market itself is not competitive enough. It may have strong monopoly elements. It may
be what we call a ‘monopolistic competition’, or there may be other forms of technical or
institutional hurdles in the way of competition.
6. Another salient feature of capitalism is the use of money and credit. This is so because a
capitalist system, by its very nature, tends to become quite complex with a large variety of
goods, services and occupations. The producers undertake production mainly for sale in the
market and not for self-consumption. Similarly, a capitalist economy tends to have production
projects which have a long technical life.
7. In capitalism, all economic activities are guided by market forces. Producers produce only
those goods and services which are demanded by consumers in the market. The entire economy
operates to meet the needs and preferences of the consumers. This characteristic of capitalism
is known as that of ‘consumer sovereignty’.
Adapted from: website www.icsi.edu
 Characteristics of Capitalist economic system

Characteristics Comments

1 Private control of the

factors of production

2 Production potential

Private property and

3 inheritance

Government
4 intervention in the
economy

5 Competition

6 Money and credit

7 Consumer sovereignty

III. Speaking
What do you think about Government intervention in economy?
Hold a discussion with your partner and explain your point of view.

IV. Listening

V. Writing 1

Fire destroyed a warehouse in Maputo City. Read the dialogue below. It is about a police
interviewing the residents.
Police: Tell me Madam, what happened in this building?
Woman: I don’t know. The fire started suddenly and there was panic everywhere … some
people screaming, others running… explosions! it seemed like a war zone!
Police: Oh, I see.
Notice that we add ed to regular verbs to make past simple. Notice also what happens to verbs
ending in y.

It start + ed suddenly.
The Plane arrive + ed due to bad weather.
Mona play + ed basketball with her friends.
Aristina cry + ied a lot when she got a negative mark.

Exercise 1
Complete the sentences using the verbs in brackets correctly.
1. I didn’t write the test because I ___________ (arrive) late.
2. We _________ (talk) a lot about our childhood yesterday.
3. We _________ (listen) to the news then we had dinner.
4. Athenians ___________ (devise) the concept of state.
5. In the past people ________ (use) goods as a form of exchange.

Notice how the past form negative is formed.

a. We add not after was/were i.e. She was not happy. They were not aware of danger.
b. We also add not after had, could, should, would, and might i.e. He had not a house.
c. For all the other verbs including have we use (did not + verb) i.e. She didn’t like the house.
Notice the table (Modal verbs do not apply).

I
He go to town.
She did not enjoy the food.
It have definite economic ideas.
We didn’t coin the concepts of needs and want.
You agree in anything their discussion.
They discuss economic issues.

Execise 2
Complete the sentences using the verbs in brackets correctly.
1. Ancient civilizations ________ (have) definite economic ideas.
2. Plato __________ (discover) price theory.
3. Aristotle _________ (write) the book “The Wealth of Nations”.
4. Medieval economic thinkers ________ (know) much about macroeconomics.
5. 20 years ago, most universities __________ (teach) Accounting in Mozambique.
Notice how questions are formed in the past form.
d. We put the verb was/were before the subject i.e. Was she happy? Were they aware of
danger?
e. We also put had, could, should, would, and might i.e. Had he a house? Could she read?
f. For all the other verbs including have we use (did+ subject + verb) i.e. She Did she like the
house.
Notice the table (Modal verbs do not apply).

I
he go to town?
Did she enjoy the food?
it have definite economic ideas?
Did we coin the concepts of needs and want?
you agree in anything their discussion?
they discuss economic issues?

Exercise
Write correct questions using the given words.
1. they/ study / public accounting/ in the past?
2. Your English is very good! Where/you/ learn/your English?
3. They/write/ the exam last year?
4. Mozambique/ do/ well during the pandemic?
5. What/ you/ get / in the last test?
6. How/Greek and Jewish/ explain/ aspects of economy?
7. What/you did/to deserve all these criticisms?
8. Who /come here/ yesterday?
9. What/ happen / when I was away?
10. When/academic year begin?
Writing 2
Write a short paragraph about your past weekend or any other event of your choice.
Unit 3 Different economic systems
3 C Socialist Economic System
I. Vocabulary
The words in table A and table B share something. They are antonyms.
1. Find a word in table A that has opposite meaning with a word in table B.

Drawbacks, features, get rid of, desirable, inequality, equitable,

effective, rendered, frozen, allowed, input, fluctuate,

acquire/get, stable, undesirable, disadvantages, output, equality,

unfair, ineffective, characteristics, equal, freed, forbidden,

2. Share your findings with a partner.

II. Reading

Read text A and take a few notes about important characteristics of the socialist economic
system. Use these noes to complete missing information in text B.
Text A
 The concept of a socialist economic system
The concept of a socialist economy has its origin in the drawbacks of capitalism. There are no pre-
determined details of a socialist system, but its main features are well recognized. This system tries to
get rid of the drawbacks of capitalism and incorporate those features which are considered to be
desirable. For example, it aims at removing the problems of inequalities of income and wealth,
inequalities of economic opportunities, unemployment, cyclical fluctuations, and waste of productive
resources. The advocates of socialism believe that most of these drawbacks come into being because
of certain basic features of capitalism including the institutions of private property and inheritance, and
the use of market mechanism. In the words of H. D. Dickinson, “Socialism is an organisation of the
society in which the material means of production are owned by the whole community and operated
by organs, representative of and responsible to, all members of community according to a general plan,
all members of community being entitled to get benefits from the results of such socialist planned
production on the basis of equal rights.” According to Maurice Dobb, “The fundamental character of
socialism consists in its abolition of class relations which form the basis of Capitalist production through
expropriation of the propertied class and the socialisation of land and capital.” Accordingly, Socialism
is basically designed to have the following salient features.
1. In a socialist economy, the institutions of private property and inheritance are abolished. The ‘private
sector’ as we understand by this term, does not exist. It means that the ownership of means of
production is not in the hands of individuals and households. Instead, they are owned by the
government authorities and/or cooperatives or society. Private ownership is allowed only in the case
of consumption goods and personal belongings, and that too only to a limited extent.
2. A socialist economy is not guided by free working of a market mechanism. It is rendered ineffective.
In a sense, its operation is “frozen”. Consumers and producers are not allowed freedom in their decision
making. The consumers have to take decisions within the limits set by the authorities regarding what
to produce, how much to produce, and what resources to be used as inputs. Thus, demand and supply
forces are not to respond to changes in prices.. Instead they are regulated with the objective of serving
the national interests as a whole. Similarly, prices are not allowed to fluctuate in response to changes
in demand and supply. They are also controlled and regulated by the authorities. Only in some cases,
cooperatives may be permitted to change the prices within certain limits. Systematic operation of a
complex economy necessitates a complex and vast set up of decision-making .
3. A socialist economy recognises the ill-effects of money and credit. Accordingly, it is not able to
completely discard the use of money and credit but restricts it to the minimum necessary extent.
Another important feature of socialism is to have class less society. Since under socialism, no property
is privately owned, so there is no question of existence of classes. Every person in the society gets the
share in production according to his own merits.
Adapted from: website www.icsi.edu Business economics
The text below summarizes the socialist economic system.
1. Complete text B with information from text A.

Text B

Capitalism and socialism have different economic systems. The system of government in a
socialist regime is ________________ that is, all social and governmental institutions follow
instructions from the central government. Socialism is an economic system based on
_____________________________ of the means of production. The ownership of means of
production must only be in the hands of the ___________________________ or ___________.
All production and_________________ decisions are made by the government.
Consequently, the government determines what to _______________, how and when to
____________, the kind of resources to be employed in the production; and finally how the
outputs must be supplied to its citizens (including food and health care).
The proponents of socialism believe that it leads to a more _______ distribution of goods
and services and a more ___________ society ( a society with no social differences.
Socialist system is also opposed to capitalist system because all production is driven for
________ rather than for profit; it also bans all types of ____________ buying and selling as
well as price_____________ in the market because the government controls the market
monopoly.

III. Writing 1
Exercise
Complete the blank spaces with the correct verb form.
1. The waiter ___________ her suitcase to the bus. (to carry)

2. As soon as she noticed the building, she ___________the taxi driver to stop the car. (to tell)

3. The students ___________ to the playground but no one was there. (to hurry)

4. Emelin ___________ a medal last year. (to win)

5. My friend ___________ his trip to Europe but he didn’t travel. (to plan)

6. The thieves ___________ arrested by the police yesterday. (to be)

7. The maid ___________ the cup but her employer didn’t say a word. (to drop)

8. The Smiths ___________ to Spain. The will come back tomorrow. (to travel)

9. The baby ___________ because he was hungry. (to cry)

10. She ___________ a bag because she didn’t want his help. (to carry)
Unit 3 Different economic systems
3 D Mixed Economic System
I. Vocabulary
In the past lessons, you have discussed capitalist and socialist economic systems.
1. The table below describes some economic systems. Match them to their definitions.
Economic system Salient characteristics
1 Traditional A Some aspects of capitalist and socialist are taken into
account. Market mechanisms dictate which aspects to
be considered.
2 Capitalist B All property ownership and means of production are
governmentally centralized. No
3 Socialist C Families live in small community and make their living
through fishing, agriculture and hunting with
occasional exchange of goods.
4 Mixed economy D The means of production are based on the ownership
and buying and selling are through competition
towards profit.

II. Reading
Read the text and answer True, False or Not Mentioned to the given statements.
Mixed economy
A mixed economy, in economics, is a market system of resource allocation, commerce, and trade in
which free markets coexist with government intervention. It is a blending elements of a market
economy with elements of a planned economy, markets with state interventionism, or private
enterprise with public enterprise. Common to all mixed economies is a combination of free-market
principles and principles of socialism. While there is no single definition of a mixed economy, one
definition is about a mixture of markets with state interventionism, referring specifically to
a capitalist market economy with strong regulatory oversight and extensive interventions into
markets. Another is that of active collaboration of capitalist and socialist visions. Yet another
definition is apolitical in nature, strictly referring to an economy containing a mixture of private
enterprise with public enterprise. Alternatively, a mixed economy can refer to a reformist
transitionary phase to a socialist economy that allows a substantial role for private enterprise and
contracting within a dominant economic framework of public ownership.
The idea behind a mixed economy, as advocated by John Maynard Keynes and some others, was not
to abandon capitalism, but to retain a predominance of private ownership and control of the means
of production, with profit-seeking enterprise and the accumulation of capital as its fundamental
driving force. The difference from a laissez-faire capitalist system is that markets are subject to
varying degrees of regulatory control and governments wield indirect macroeconomic influence
through fiscal and monetary policies with a view to counteracting capitalism's history of boom/bust
cycles, unemployment and income disparities. In this framework, varying degrees of public utilities
and essential services are provided by the government, with state activity often limited to providing
public goods and universal civic requirements, including education, healthcare, physical
infrastructure and management of public lands.
Adapted from https://en.wikipedia.org/wiki/Mixed_economy
 Statements
1. A mixed economy does not adopt one position alone.
2. In a mixed economy, the government does not interfere in the market systems.
3. Market mechanism establishes criteria for selection of the features of a mixed economy.
4. A mixed economy is a blending of market mechanisms of capitalism and communism.
5. A mixed economy sometimes displays more features of capitalism or socialist economy
vice-versa depending on market requirements.
6. Accumulation of capital is the driving force of a mixed economy.
7. Public utilities and essential services are privatized in a mixed economy.
8. Private sector and central authorities agree on which aspects of market to incorporate.

III. Writing 1
Complete the blank spaces with the correct verb form.
1. The students ___________ to find the answer without success. (to try)

2. ___________ the new film? (Shena/ to enjoy)

3. The football team ___________ yesterday in London. (to play)

4. My uncle ___________ stayed in London. (to stay)

5. The car ___________ in front of the traffic lights. (to crash)

6. Ann ___________ her visit in Denmark but she was not allowed t travel. (to plan)

17. The boys ___________ to the city centre to buy toys but they didn’t like them. (to hurry)

Exercise 2
Use the words in the box below to complete the text about Adam Smith.
be explain lay have admit be

In his book, Wealth of Nations, Smith 1 _________the foundations of what would become basic
principles of economists’ understanding of individual behavior, the market mechanism, and the
role of markets vis-à-vis governments. Smith 2 ___________ the first to explicitly characterize
individual economic behavior as self-interested behavior. He 3 __________ that it is people’s
desire for a gain that 4 _________ work, production, and ultimately the existence of an economic
system. Self-interest 5 _________ initially thought to be at odds with another principle that Smith
6 ________ developed in his Theory of Moral Sentiments (1759/1982).
Writing 2
Think of an economic system and write a few sentences that best describes it.