How does different economic system contribute towards the welfare and wealth of a country? Describe one economic systems of a particular country and compare it with another economic system of another country.
The Study of Economic Systems
The system which comprises of the mechanism for production, distribution along with exchange for products apart from the consumption of the goods and services in the various entities are termed as an economic system. There are mainly four types of economic systems. An economic system can also be termed as an organized way through which a country can allocate its resource and also distributes goods and services throughout the whole nation. Economic systems can also be termed as the means through which the governments of the county will be allocating resources and trade goods and services (Becker, 2017). The government controls the five factors of production which includes capital, labor, physical sources, entrepreneurs and the information resource. Therefore, an economic system can be termed as a system of production, allocation of resource along with the distribution of good within a society or within a given area. All the economic systems generally comprise of three basic questions which includes
- What goods are to be produced and in what quantities?
- How will the goods and the services will be produced and by whom along with what resources and technologies should be used?
- Who receives the output of the production? Who will be enjoying the benefits of the goods and services and then how will the products be distributed to the society?
The study of the economic systems therefore states the relationship present between the agencies and the institutions.
There are basically four different types of economies. They are traditional economy, command economy, mixed economy and market economy.
The traditional economic system is known to be one of the most important ancient types of economies which is resent in the world. It has been found that huge portion of the world still functions under the traditional economic systems. The traditional economic systems is mainly known to be present in rural, closely tied up land and in second or third world countries. Presence of surplus is quite a rare phenomena in this type of economic system. One of the advantage of this type of economy is that the tradition and the custom are preserved which is not present in the mixed economies (Ghisellini, Cialani & Ulgiati, 2016). The members in this economy also have a more specific and pronounced role and also these economies are socially satisfied. However one of the disadvantage is that the economies cannot enjoy western medicine, technology and centralized utilizes. The traditional economic system is generally most traditional and ancient type of economy. Traditional economies cannot achieve the type of surplus or profit which results from the market or mixed economy. It generally focuses on the goods and services which are directly related to the beliefs, traditions and customs. The traditional economic system generally focuses on the customs and history. The traditional economy usually exists in a nomadic society. The traditional economy usually covers vast areas in order to find enough food for supporting them. Most of the traditional economies also only produce what they need. Therefore, there is hardly any surplus or leftovers. When these type of economies trade they usually relies on the barter. It is present only between groups which do not compete.
Different Types of Economic Systems
In case of the command economic system, thee major part of the economic system will be controlled by the government or the centralized power. As the government is one of the main feature of the economy, it will be present in everything which comprises of planning and redistributing of the resources. A command economy is also capable of creating healthy supply of resources which will reward people by affordable prices. In case of a command economy the government wants all the important industries like the aviation, railroad and utilities. There are several advantages of the command economic system like if this kind of economic system is executed correctly, it can help the government to mobilize its resources in a large scale. This type of mobility will help in providing jobs for most of the citizens (Wang, 2017). The government will also be able to focus on the goodness of the society which suggests efficient usage of the resources. . In case of command economy the government can also create a lot of jobs and services at an affordable rate. One of the most significant feature of the command economy is that most of the part of the economic system is usually controlled by the centralized power. Although, the government in the command economic system tries to control its most valuable resources. Some of the advantages which is present in this type of economy is the government will be able to produce healthy supply of the resources and will be rewarding the citizens with the affordable prices.
The market economic system is very similar to the free market. The government in the market economic system will not be controlling any vital resource or any kind of special good in the economic system. In this kind of economic system, most the things are run by the people. One of the advantage of the market economic system is that the market and government are separated (Wang, 2017). There is absence of any kind of government intervention in a pure market economy. Due to separation of both market and the government, it will be preventing the government to become more powerful. It also prevents the government to be aligned with the markets. Some of the advantages of the free market economy is that the consumers can pay the highest price which they want do and the businesses can only produce profitable goods and services. The free market economy can also led to an efficient usage of the factors of production since the business are quite competitive in nature. Business in this kind of economic system generally invests heavily in the research and development. Some of the disadvantages of the free market economy is that as a result of the competitive nature of the free market, businesses will not be caring for the elderly and the disabled which leads to high income inequality. The free markets are completely driven by the self-interest (Becker, 2017). The economy therefore needs to take care of the human needs such as providing proper healthcare for the poor people. The consumers may sometimes get exploited with the presence of monopolies.
Advantages and Disadvantages of Traditional Economy
The mixed economy is a combination of various types of economic system. Mixed economic system is a cross presence between a market economy and the command economy. In case of the mixed economic systems, the market is free of government ownership except for defense and railroad. Although, the government involves regulation of the private business. Some of the advantage of the mixed economies are presence of less government intervention compared of the command economy (Ghisellini, Cialani & Ulgiati, 2016). As a result of this the private business can run efficiently and can easily cut cost. In case of market failure the government can intervene by creating net programs. In case of a mixed economy government can also use the policies of tax for redistributing income and reducing the inequality. This kind of economy is also known as the dual economy. Although there exists a number of disadvantages in case of mixed economies. One of the disadvantage of the mixed economies is that the state run industries are subsidized by the government and then run to large debts as they are uncompetitive in nature.
In the study the economic systems of Malaysia and China have been compared. It is known that Malaysia has the mixed economic system and o the other hand China have a command economic system. Malaysia is a member of the Asia Pacific Economic system, Trans Pacific Partnership and Association of Southeast Asia Nations (Schneider, & Schmidtke, 2017). It has a mixed economic system which includes different kinds of private freedom, government regulation along with centralized economic planning. Therefore it can be stated that there is a presence of both mixed economic system and the command economic system. The price mechanism here is allowed to work however in most of the cases the mechanism can fail or does not work for the public. Some of the economies are private and in some part they are controlled by the government. On the other hand China is a command economy where the government can control the economy. The command economies are quite an inferior to the free market economies. This inefficiency have created shortages and wasteful surpluses. The mixed economies are controlled by the government. Surplus and shortage and surplus take place in the market, when the surplus takes place the producers have to reduce o decrease the price so that more demand is created in the economy. The Malaysian government therefore will be responsible by helping them tomake the supply meet the demand of the market . Malaysia which is known to have the mixed economy combines the advantages of both Free Enterprise System and the Central Command System. The price mechanism can operate freely, however in some of the cases the price mechanism may fail to operate where the government have to work. In case of Malaysia the degree of the intervention by the government and the public are most of the time at balance. The outside traders in Malaysia are not allowed to join as a result of the monopoly power (O'neil, 2015). The intervention by the government also takes place by controlling the prices of the goods and services. On the other hand in case of China where there is the command economy, the government controls the economy. In case of China the government controls the economy acting as a central planner. The government therefore should be intervening the economy in the right way which correct the defects by using suitable solutions y overcoming the economic problem and managing the finance. The government in both the countries needs to consider by clear decision making. The command economic system of China takes place when the government controls all the major aspects of the economy and the economic production. The government in most of the cases decides what to produce, how to produce and to distribute goods and services within the economy. However in case of the free economic system, there is absence of any economic intervention along with the regulation by the state. In case of the free market economy the government plays a neutral role in the economy. The characteristics in the free economic system the markets are free to earn profits, free to be an investor, they are also free to compete and create capital formation. However in case of China, where there is command economic system the government will be controlling the major aspects of the economy and the economic production (Ghisellini, Cialani, & Ulgiati, 2016). Malaysia is known to be one of those countries in the world who maintains the largest production capacity in the ASEAN region. In case of Malaysia the resources are usually controlled by the government and individuals. Businesses which wants to establish their operation in Malaysia can usually control all their business operation but will be in line with the government requirement. When the economic system of the country is understood , it will then help in revealing the forces which will be behind the growth of the country. The Malaysian economy is known to be the third largest economy in the South Asia. The labour productivity of Malaysia is known to be much higher compared to those of Thailand, Indonesia and Philippines. On the other hand China has the command economic system or is known as the socialist market economy. The government of China is known to control the economy by acting as the central planner unlike the government of Malaysia.
Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593-1636.
Becker, G. S. (2017). Economic theory. Routledge.
Carson, R. L. (2017). Comparative Economic Systems: v. 2: Market and State in Economic Systems. Routledge.
Dahl, R. A. (2017). Politics, economics, and welfare. Routledge.
Fewsmith, J. (2016). Dilemmas of Reform in China: Political Conflict and Economic Debate: Political Conflict and Economic Debate. Routledge.
Flunger, R., Mladenow, A., & Strauss, C. (2017, December). The free-to-play business model. In Proceedings of the 19th International Conference on Information Integration and Web-based Applications & Services (pp. 373-379). ACM.
Friedman, M. (2017). Price theory. Routledge.
Ghisellini, P., Cialani, C., & Ulgiati, S. (2016). A review on circular economy: the expected transition to a balanced interplay of environmental and economic systems. Journal of Cleaner production, 114, 11-32.
Gilpin, R. (2016). The political economy of international relations. Princeton University Press.
Mazur, V. V., Barmuta, K. A., Demin, S. S., Tikhomirov, E. A., & Bykovskiy, M. A. (2016). Innovation clusters: Advantages and disadvantages. International Journal of Economics and Financial Issues, 6(1S), 270-274.
O'neil, P. H. (2015). Essentials of comparative politics: Fifth international student edition. WW Norton & Company.
Robinson, J. (2017). Economic philosophy. Routledge.
Schneider, S., & Schmidtke, H. (2017). A Legitimation Crisis of the Capitalist Market Economy?. In Capitalism and Its Legitimacy in Times of Crisis (pp. 1-35). Palgrave Macmillan, Cham.
Shannon, T. R. (2018). An introduction to the world-system perspective. Routledge.
Tang, L., Shi, J., Yu, L., & Bao, Q. (2017). Economic and environmental influences of coal resource tax in China: A dynamic computable general equilibrium approach. Resources, Conservation and Recycling, 117, 34-44.
Thamo, T., Addai, D., Pannell, D. J., Robertson, M. J., Thomas, D. T., & Young, J. M. (2017). Climate change impacts and farm-level adaptation: Economic analysis of a mixed cropping–livestock system. Agricultural Systems, 150, 99-108.
Wang, Y. (2017). China's Economic Development and Democratization. Routledge.
Weber, M. (2017). General economic history. Routledge.
Young, S. (2015). Private business and economic reform in China. Routledge.
Zweig, D. (2018). Internationalizing China: domestic interests and global linkages. Cornell University Press.
To export a reference to this article please select a referencing stye below:
My Assignment Help. (2021). Different Types Of Economy And Their Contribution Towards Welfare And Wealth Of A Country. Retrieved from https://myassignmenthelp.com/free-samples/econ7302-microeconomics/the-study-of-the-economic-systems.html.
"Different Types Of Economy And Their Contribution Towards Welfare And Wealth Of A Country." My Assignment Help, 2021, https://myassignmenthelp.com/free-samples/econ7302-microeconomics/the-study-of-the-economic-systems.html.
My Assignment Help (2021) Different Types Of Economy And Their Contribution Towards Welfare And Wealth Of A Country [Online]. Available from: https://myassignmenthelp.com/free-samples/econ7302-microeconomics/the-study-of-the-economic-systems.html
[Accessed 29 February 2024].
My Assignment Help. 'Different Types Of Economy And Their Contribution Towards Welfare And Wealth Of A Country' (My Assignment Help, 2021) <https://myassignmenthelp.com/free-samples/econ7302-microeconomics/the-study-of-the-economic-systems.html> accessed 29 February 2024.
My Assignment Help. Different Types Of Economy And Their Contribution Towards Welfare And Wealth Of A Country [Internet]. My Assignment Help. 2021 [cited 29 February 2024]. Available from: https://myassignmenthelp.com/free-samples/econ7302-microeconomics/the-study-of-the-economic-systems.html.