Thursday, 21 June 2012

economics systems

Economic systems

A. Free market economy / capitalist / laissez faire


- Is an economy system was operation without government intervention.


- Decisions are taken by individual and firm with no government intervention.
- It usually associated with a pure capitalist, where land and capital are privately owned.
- The price mechanism used in this system whereby changes in price in response to change in demand and supply have the effect of making demand equal to supply.


- Individual are free to make their own economic choice
- Freedom to workers and firm to choose where to work and what production methods to use.


- Existence of wide gap between the rich and the poor.
- Existence of unemployment problem.

B. Centrally planned or command economy / socialist economy

- Is economy was fully controller by government.


- Decision are taken by the government or central authorities
- It usually associated with a socialist or communist economy system, where land and capital are collectively owned. The government or central authorities plans the allocation of resources.


- Decisions of allocation of resources always are in the interests of society as a whole and with specific national goals.
- Unemployment could be largely avoided if the government carefully planned the allocation of labour.
- Same income distribution
- Produces the goods and services at efficiency level.


- Mistake decide in economy (decision made by some people only)
- Technology and innovation are undeveloped because all productions are decided by government.

C. Mixed economy

- Is a economy system that incorporates a mixture of private and government ownership or control ( capitalism and socialist)


- This system use market mechanism and allow government intervention in economy activities.
- Price level determine by price’s mechanism but basic economy’s problem resolved together between government and private.
- Individual and firm free to have properties.

- The government will try to reduce gap of income between rich and poor people. ( taxes and subsidies)
- Government will also control the existence of monopolies.


- Business freedom is not totally offered for enterprise.

D. Islamic economy

- Economy which uses Allah's creation natural resources with most efficient and fair way based on Islamic laws.


- Al Quran and Hadith was the main source in Islamic economics’ activities.
- Individual free to own property
- individual no give priority to profit in business
- fair competition permitted
- free to decide in economics


- Good in the world and afterworld
- Free competition


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