Economic System is of strategic importance for an economy to decide what goods and services to be produced, how it is to be produced, and for whom it is to be produced. These questions are answered differently in different economic systems. In this post, we have discussed Socialist Economic System.
Socialist Economic System
Under a socialist economic system, the decisions regarding the central problems of what to produce, how to produce, and for whom to produce are taken by the government. As against the capitalist system, where the production and consumption decisions are taken on the basis of demand and supply, in the socialist system the main decisive factor is the welfare of the society as a whole.
In other words, the needs of the society are given prime importance in the decision-making by the government. The government ensures that social equality is maintained. The private players are devoid of any participation in the economy. The process of production is undertaken by the government. Also, the distribution of various goods and services is carried out by the government. The consumers in this economic system are not free to choose what they want to consume, rather they consume what is provided to them by the government. Although this system ensures welfare in the society, with the working of the government it is often found that corruption and inefficiency creep in the system.
In a free-market economy or a capitalist economic system, the decisions regarding what, how, and for whom to produce are governed by the market forces.
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