Economic system refers to the set of economic and legal relationships that manage the life of a society at a specific time. This system influences the organization of mutual relationships between individuals and resources, especially natural resources. Economic systems are an important subject subject to study and development, as they aim to meet individual needs and solve problems related to the scarcity of resources and the diversity of human needs
Types of economic systems:
- Capitalist system:
It aims to achieve maximum profits, as it is based on the principle of individual ownership of the means of production. It depends on supply, demand, and competition, and capitalist countries are characterized by limited government interventions. - Socialist system:
The socialist system is considered more conservative in ownership of the means of production, as it is collectively owned. The state plays a major role in production and distribution. - Mixed system:
It represents a combination of capitalist and socialist systems, where the private and public sectors exist side by side. The state plays a role in monitoring the private sector and providing consumer protection.
The institutions that make up the economic system are a group:
- Control over the means of production: relates to ownership of the means of production and can be individual or collective.
- Decision-making system: determines who makes economic decisions and how they are made.
- Coordination mechanism: How to obtain information and use it in decision-making.
- Incentive system: How to encourage participation in economic activities by providing incentives.
Economic systems are classified according to the allocation of resources into market economies, mixed economies, and centrally planned economies.
The economic system deals with basic problems of determining which goods and services should be produced and in what quantities, how to produce and distribute them, and to whom the benefits of this production will be enjoyed.
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