Economic System

NAME.
: ABDULRAZZAQ
REG NO: BA.LLB/1-21 M01008
SUBJECT : FUNDAMENTAL ECONOMIC
SUBMITTED TO: Sir Asim
SUBMISSION DATE: 27/APR/2021
Economic system
Economic system: An economic system is a
mechanism (or a social institution) which deal
with the production, Distribution and
consumption of goods and services in a
particular society.
Problems of Economic system

There is three type of central problems of
Economic system.
1. What to produce
2. How to produce
3. Whom to produce
1. What to produce:
MEANING: this problem involves selection of
goods and services to be produce and the
quantity to be produced of each selected
commodity.
REASONS: Every Economy has limited
recourses thus they can’t produce all the
goods.
EXAMPLE: production of more sugar only by
possible to reducing the production of other
goods.
If want to produce unit of “goods A” as a
result we will decline the production of “goods
B”
ASPECTS: This problem of “What to produce”
has two Aspects.
i.) What possible commodities to be
produced:- an economy has to decide
which consumer goods, (Rice, Wheat)
and which of the capital goods (M/c
eq) are to be produced.
ii) how much to produce:- An Economy has to

decide what quantity of each commodity that
is selected.
CONCLUSION: allocate the resources in a

manner which gives maximum satisfaction.
2. HOW TO PRODUCE
MEANING:- This problem refer to the selection
of the technique to be used for production of
goods and services.
TECHNIQUE:- There are 2 types of technique of
production.
i) Labour intensive technique more
Labour and less capital.
ii) Capital intensive technique more
capital and less Labor.
EXAMPLE:- Textile can be produced either
with the lot of Leabour and a little capital but
in a metro project work there is engaged lot of
M/c and less amount of labour hence they
choose capital intensive technique in a
production process.
NOTE: in pakistan there is labour intensive
technique is preferred due to Raise the less
employment. Whereas countries like USA, UK,
China etc. prefer Capital intensive technique
due to shortage of labour.
CONCLUSION:- We always opt those technique
of production who gives (Minimum per unit
cost).
FOR WHOM TO PRODUCE

This problem relates to the distribution of
produced goods and services among the
individuals in the Economy.
OR
Selection of people of among the society.
Reasons:- no society can satisfy all the wants
of it's peoples thus a problem of choice arises.
Goods are produce for those people who have
the paying capacity.
DISTRIBUTION:- this problem can be
categorized 2 main heads.
i) PERSONAL DISTRIBUTION:- It means

how national income of an economy is
distributed among different group of
people.
ii) FUNCTIONAL DISTRIBUTION:- in

involves deciding the share of different
factor of production in the total
national product of a country.
CONCLUSION:- Ensure that urgent wants of

each productive factor are fulfilled to the
maximum possible extent.
How System Accommodate changes?
1. Markets are flexible - taste, technology and

wealth vary, today's productivity may not be
sweet tomorrow.
2. Prices help reflect these changes The market
responds. This important pricing function is
essential for a good trading system.
If there are no such signs, the government or

similar resources should be decided, but
people in the community do not know what
they want. The result may not be effective.
How system Promote Progress?
1. The market system encourages

technological innovation and capital
construction.
2. Companies that promote new trademarks
will be rewarded with increased revenue and
profits.
3. New technologies that reduce commodity

prices will ensure that competitive prices are
distributed to the entire industry.
4. Innovation occurs when unwanted

enterprises destroy new markets and
production methods.
Kind of Economic system
 Capitalism
 Socialism
 Mix economics
 Islamic Ecnomic
CAPITALISM
Merits:
 Private individuals have Economic.
freedom, to plan or Decide.
 Demand and supply Automatically. comes
on Equilibrium.
 Large variety of goods and services.
(Because of competition in market)
 Optimum use of resources.
 Consumer sovereignty. (indirectly
consumer decide what to produce)
 Profile motive.
 Nil government interference.
Demerits:
 Lowes class struggle.
 Wasteful competition.
(Advertisement etc.)
 Vast Economic inequality.
 Social injustice.
 Exploitations of labour.
Socialism
Merits:
 Welfare of society minimum standard of

living.
 Equal distribution of wealth and income.
 No exploitations of labour.
 Planned Economy.
 Balanced Economic growth
 No competition.
Demerits:
 Consumer have no choice
 Govt. Collective ownership, corruption
increase.
 No competition No incentive to hard
work.
 Price mechanism not work.
MIXED ECONOMICS
Merits:
 Ecnomic freedom, private property right,
incentive to work.
 Consumer Right freedom to choice.
 Planned Economy, Rapid and balanced
Economic growth.
 Competition, price mechanism works.
 Govt. Interference & Legislative
measures.
Demerits:
 Planned Economy sometime poor
implementation.
 Lack of efficiency, delays, Corruption,
increase tax.
 Wastage of resources.
 Poor performance.
ISLAMIC ECNOMIC SYSTEM
Merits:
 ALLAH is the sustainer.
 Everything created for servicing and
use of man.
 Social security.
 Concept of halal and haram.
 System of zakat and sadaqat.
 Free Economy but Prohibition of
interest.
 System of tax.
 Fix pricing allowed.
 Monopoly not allowed.

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NAME.

Problems of Economic system

ii) how much to produce:- An Economy has to

CONCLUSION: allocate the resources in a

FOR WHOM TO PRODUCE

i) PERSONAL DISTRIBUTION:- It means

ii) FUNCTIONAL DISTRIBUTION:- in

CONCLUSION:- Ensure that urgent wants of

1. Markets are flexible - taste, technology and

If there are no such signs, the government or

1. The market system encourages

3. New technologies that reduce commodity

4. Innovation occurs when unwanted

 Welfare of society minimum standard of

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