Economic system:
- The organized way in which a country allocates resources and distributes goods and services is known as the economic system of that nation.
- How the country functions and in which direction is its economy moving is ascertained by the economic system that the country follows.
There are three major types of economic system existing in the world:
(A) Capitalist economic system:
- If the country follows capitalistic economic system, it means that the country will adopt a policy of free trade.
- In this system, the government does not interfere much. It allows the producer to take all the major decisions with respect to production and distribution.
- Such a free trade policy boosts the economy.
- America, UK, Germany, etc. follow capitalist system.
(B) Socialist system:
- The economic system which is controlled and regulated by the government so as to ensure welfare and equal opportunity for people of the society is known as socialist system.
- In this system, all major decisions related to how much to produce, what to produce and how to produce and distribute are taken by the government. Individuals do not have a major role to play as far as decision making is concerned.
- China follows socialist system.
(C) Mixed economy (Mixed economic system):
- The economy which has some features of capitalist economy and some of socialist economy is called mixed economy.
- India has adopted a mixed economy. Under this system, India allows businesses of certain sectors to do business freely whereas certain sectors are controlled by the government itself.
