SS1 Third Term Economics Lesson Note – Economic Systems

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WEEK 10

ECONOMIC SYSTEMS

Content

1. Definition of economic system
2. Types of economic system
3. Features of a free market economy

DEFINITION OF ECONOMIC SYSTEM

An economic system may be defined as a medium or an organized way by which the means of production in a state are utilized in order to satisfy human wants.

Every society is faced with three fundamental economic problems and these problems center on what to produce, how to produce it and for whom to produce it. Although these problems are both fundamental and common to all economies, different economic systems are being applied to solve them in all societies.

An economic system consists of those institutions which a given people, nation or group of nations has chosen or accepted as the means through which their resources should be utilized for the satisfaction of their needs.

The main types of economic system

1. Free or Capitalist Economic system/Capitalism
2. Centrally-planned or controlled or socialist economic system/socialism
3. Mixed Economic system

Free or Capitalist Economic system/Capitalism

This is a system whereby the ownership and management of all means of production are vested in the hands of private individuals. It is operated in the USA, Japan, North America, New Zealand, Western Europe, Australia, Israel etc.

FEATURES OF CAPITALISM

1. Ownership of private property, which includes accumulation of wealth and acts as an incentive to savings.
2. Inheritance which is the right of an owner to designate the recipient of title to his property at the time of his death.
3. Profit move, in which people’s economic activities are guided primarily by profit motives and the desire to maximize satisfaction.
4. Competition, which helps in creating preserving efficiency in the production of goods.
5. Freedom of individual initiative.

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