Capitalist system/Market economy

Capitalism or capitalist economy is referred to as the economic system where the factors of production such as capital goods, labor, natural resources, and entrepreneurship are controlled and regulated by private businesses.

In a capitalist economy, the production of all the goods and services is dependent on the demand and supply in the market that is also known as a market economy. It is different from the central planning system that is also known as a command economy or a planned economy.

Features of Capitalism

Let us discuss the important features of capitalism or capitalist economy.

Private property: This is one of the most important characteristics of capitalism where private properties like factories, machines, and equipment can be owned by private individuals or companies.
Freedom of enterprise: Under this system, every individual has the right to make their own economic decisions without any interference. This is applicable to both consumers and producers.
Profit motive: The motive of earning profit is one of the most important drivers of a capitalist economy. In this system, all the companies are looking to produce and sell their products to consumers to earn maximum profit.
Price mechanism: Under this system, the demand and supply in the market will determine the production level and correspondingly the price set for the products without any kind of involvement from the government.
Consumer sovereignty: In this system, the market is controlled by the demands of the consumer. It regulates the level of production undertaken by the companies, and the consumer is free to decide which products to purchase.
Free trade: In this system, the low tariff barriers exist that promote international trade.
Government interference: In a capitalist economy, there is no government interference in the daily activities of the business. The customers and producers are free to make their own decisions regarding any product or service.
Flexibility in labor markets: In capitalism, there is flexibility in hiring and firing of the workforce.
Freedom of ownership: In this system, an individual can accumulate any amount of property and use it according to his will. After his death, the same property is passed on to the successors by the right of inheritance.

Advantages of Capitalist Economy

The following are the advantages of capitalism.

There is more efficiency in the capitalist economy as the products are produced according to the demand of the consumers.
There is less intervention from the government or bureaucratic interference.
There is better scope for innovation as companies look to obtain a major part of the market with their offerings.
It discourages any form of discrimination so that the trade can take place between two parties without any barriers.

Disadvantages of Capitalist Economy

Capitalism leads to inequalities in income.
In capitalism, firms can get monopoly over workers and consumers.
A high profit-earning motive of a capitalist economy is to use resources in such a way that it leads to environmental problems by destroying the natural balance.

Socialist system and Mixed Economy

The Mixed Economy is a system that combines capitalism and socialism. The Mixed Economy incorporates the benefits of capitalism and socialism while avoiding their drawbacks. Under a Mixed Economy, the private and public sectors coexist. Economic activity is directed by the government toward particular socially significant sectors of the Economy, and the balance is determined by the operation of the pricing mechanism.

The public and private sectors collaborate to achieve social objectives within the framework of a common Economic plan. The private sector is a significant component of the Mixed Economy and is regarded as a critical engine of Economic growth. India is widely recognized as the world's best example of a Mixed Economy.

Features of a Mixed Economy

Coexistence of all the Sectors

In the Mixed Economy system, all three sectors exist together, that is the private sector, public sector and joint sector. The government and private companies together hold the responsibilities of the respective division. 51% of the total ownership belongs to the state itself.

Cooperative Sector

According to the mixed Economy definition, a cooperative sector exists in a Mixed Economy. The significance of this sector is vital. In Mixed Economy countries, the government provides necessary items and financial aids to the areas involved in cooperative societies like warehousing, dairy industry and more.

Freedom and Control to be precise

In a Mixed Economy, we denote that the individuals have complete liberty to manufacture goods and items and choose property and occupation according to their choice. The regulating body maintains control to avoid all sorts of discrimination and monopolistic issues.

Economic Planning

In a mixed Economy, the central planning authority exists. All the sectors of the firm follow this rule and plan to pursue their goals. The plan is solely observed with the motive to attain national Economic growth.

Social Welfare

The significant look out of a mixed Economy is the social welfare of society. It focuses on eliminating the unemployment issues from the country. The mixed Economy definition further says it enhances social security and public education facilities.

Advantages of Mixed Economy

The following are the significant advantages of a Mixed Economy:

· In a Mixed Economy, there is competition between public and private sectors, which ultimately results in increased efficiency and productivity.
· Profits from public sector firms accrue to the government, and as a result, income inequality decreases under a Mixed Economy.
· Economic activities are systematically planned in a Mixed Economy. The government plans the entire Economic system in detail.
· Since Economic activities are planned, Economic stability prevails in a Mixed Economy.
·In a Mixed Economy, goods are produced according to consumer preferences, which results in consumer sovereignty.
·In a Mixed Economy, enterprise flexibility and profit incentive are critical. Due to these factors, initiative, innovation, and productivity always tend to grow.
·A Mixed Economic system also prioritizes social welfare. A Mixed Economy protects individual rights.