CAPITALISM / FREE MARKET

ECONOMY

Definition :Capitalism is that part of economic systems where productions are owned and
managed by private individuals and institutions. Or it is economic individualism
where the individuals are the one to decide what and how much to produced and
distribution. They are at liberty to use any technique of production and produce
anything they like.

Advantages Of Capitalism : Economic freedom

Producers have complete freedom to invest in any business or trade.
Variety of goods and services
Every producers gives attention to consumers taste.Hence, large variety of goods
and services produced.
Optimum use of resources
All natural resources are used to their optimum level as production as production
is with the purpose of earning profit and no scope of wastages at all.
Higher standard of living
Variety of goods are sold at cheap rates make it reach to the poor societies.This
results in rise in their standard of living.
New inventions
To get more profits, producers take initiative to develop new techniques in their
production.

Disadvantages Of Capitalism :-

Labour exploitation
Labours get less wages in comparison to their working hours.Their marginal
productivity are not sufficient for their livehood.
Negative externality.
This is the effect from uncontrolled industrial expansion.For example, pollution
from disposal of industrial waste.
Monopoly
Free competition between firms results in momopoly.This negatively impact
consumers where prices may rise and poor quality of goods.
Social welfare neglected
Firms are focused on maximizing profits.Social responsibility is often forgotten.
Price instability
Price of goods are determined by the power of supply and demand in the market.If
demand exceeds supply,the market price will increase.
Uneven distribution of income.
The richer group continues accumulate the wealth whereas the poor ones remains
as it was before.
Wide income distribution gaps.
There is large income distribution gap between the rich and poor. This may affect
the economic growth of a country.

SOCIALISM / PLANNED /
COMMAND
ECONOMY
Definition :Socialism economic system means of production are owned and managed by the
state. Ownership of means of production is not allowed. In socialism economic
activities are carried on mainly for social gains and personal interest is of less
significance.

Advantages Of Socialism : Greater efficiency

The mean production are not left in the market ,rather they are controlled and
regulated by the central planning authority.
Greater welfare
Everyone works hard and they are paid according to their skills and ability.
Absence of monopolistic practices
Instead of private monopoly, there is state monopoly over the productive system
but this is operated for the welfare of the people.
Economic growth .
Socialism economy functions according to the plan in a orderly manners and
marches rapidly to the road of economic progress.

Disadvantages Of Socialism : No freedom of occupation

Every person is provided job by the goverment. They cannot leave or change it.
Errors in decision making
The central planning authority often commits mistakes in resource allocation
because the entire work is done on trial and error basis
Lack of competition
The production is controlled by the government so there is lack competition
among producers.
Limited individual choice
There is no freedom in private ownership because all properties an factors of
production are owned by government.
Development in technology and innovation are not encouraged
The developments are slow due to lack of competition in the economy.
Lack of motivation to work
Productions are slow and goods are produced as per instruction of the
government.

MIXED ECONOMY
Definition :Mixed economy has an important public sector,. a number of industries which are
owned and managed by the goverment. The goverment is not all pervasive owner
of all means production. Private enterprise is allowed and even encouraged to
operate a large number of industries and to own the various means of production.
Thus, in this economic system the public and private sectors exist side by side.

Advantages Of Mixed Economy : More Efficiency for Private Firms

most of the business is left to the private firms, they have profit incentive for being
innovative and for cutting costs.

Freedom
Every individual has liberty to choose any occupation of their choice.

Competition and efficient production

Due to competition between both private and public sectors,level of efficiency
remains high.

More options/choices
The government produces public goods , while the private sectors produce private
goods.Therefore ,more types of goods are produced.

Disadvantages Of Mixed Economy :-

Uneven distribution of income

The rich income group will continue accumulate wealth while the poor group still
remains as it was.

Emergence of illegal activities

Private sectors needs more than normal profit will involve themselves in illegal
activities.

Possibility of market and economic instability

Due to the quota system that has been introduced by government,the tendency of
misconduct in order to gain profit lead to black market and price hike

Threat of nasionalism
There is constant fear of nasionalism of private sector.For this they do not put into
use their resources for common benefits.

More wastages
A part of fund allocated to different projects in public sectors goes into the pocket
of intermediaries. Thus,the resources is misued.

ISLAMIC ECONOMY
Definition :Islamic economic is the study where unlimited desires of individuals to use
available resources to achieve happiness on earth.It studies how individuals and
society use limited factors of production to fulfil their unlimited desires.

Advantages :

Collection of Zakat and Usher

In replacement of Tax system Islam gives the concept of Zakat. An Islamic State
can collect the zakat and usher from the citizens. It can also impose tax and borrow
the money from inside and outside the country.
Fare distribution of Wealth
It is also the duty of Islamic state that it should enforce the fair distribution or
wealth. Islam is against the concentration of wealth in few hands.
Economic Freedom
In Islamic state everybody is allowed to adopt any profession or business within
the law and it is the duty of the state that it should give them full protection.
Bilateral Relations

Islamic economics advocate developing good relations with Muslim world in

particular and other in general. It should always cooperate with those who are right
and serving for humanity.

Disadvantages :

Calculation and Collection of Zakar and Usar cannot be verified and payers
calculation is deemed to be true.
Escape of the responsibility of Zakat and UShars is easy.
It is difficult to implement it on non-Muslim societies.

REFERENCES
Merits and Demerits of Capitalistic System. 2015. . [ONLINE] Available
at: http://www.economicsdiscussion.net/economic-problems/merits-anddemerits-of-capitalistic-system/2060. [Accessed 25 December 2015]

What is Mixed Economy, Advantages & Disadvantages of Mixed Economy.

2015. [ONLINE] Available at:http://www.studylecturenotes.com/managementsciences/economics/244-what-is-mixed-economy-mba-economics-notes.
[Accessed 25 December 2015].

What is Socialism, Advantages and Disadvantages of Socialism. 2015.

[ONLINE] Available at:http://www.studylecturenotes.com/managementsciences/economics/243-what-is-socialism-mba-economics-notes. [Accessed 25
December 2015].

Merits and Demerits of Islamic Economic System | MBA Tutorials. 2015.

[ONLINE] Available at: http://www.mba-tutorials.com/economics/1118-meritsand-demerits-of-islamic-economic-system.html. [Accessed 25 December 2015].

 Sarimah Aman Shah (2014). Principle of Economics. 2nd ed. Selangor: Oxford
Fajar. 20-27.