Capitalisti c economy @ Capitalism - known as free market or laissez-faire economic system. No one is told what to do or how to do it - the forces of market demand and supply, without any government intervention, determine how resources are allocated. Examples of countries practicing the capitalistic economic system are the USA, canada, japan and hong kong.
Capitalisti c economy @ Capitalism - known as free market or laissez-faire economic system. No one is told what to do or how to do it - the forces of market demand and supply, without any government intervention, determine how resources are allocated. Examples of countries practicing the capitalistic economic system are the USA, canada, japan and hong kong.
Capitalisti c economy @ Capitalism - known as free market or laissez-faire economic system. No one is told what to do or how to do it - the forces of market demand and supply, without any government intervention, determine how resources are allocated. Examples of countries practicing the capitalistic economic system are the USA, canada, japan and hong kong.
The types of Economics System Capitalisti c Economy @ Capitalism
- Known as free market or laissez-faire economic system
- A pure market economy is one which no one is told what to do or how to do it. Everyone is left on their own to do economic decision - The forces of market demand and supply, without any government intervention, determine how resources are allocated, which known as the working of price mechanism - Examples of countries practicing the capitalistic economic system are the USA, Canada, J apan and Hong Kong. Characteri sti cs Advantages Disadvantages
Pri vate ownership of resources - Individuals are free to own factors of production and use them in whatever manner they wish to.
Automati c working - Market is automatically works - No needs for costly and complex bureaucracies to coordinate economic decisions - The economy can respond quickly to the changing of demand and supply conditions
Income Disparity - Widen income disparity - Those who have power and property, such as big business and landlords, will gain the expense of those without power and prosperity - The rich become richer, the poor become poorer
Freedom of enterprise and choice - All economic decisions are taken by households and firms, which acted on their own interest. - Firms are free to choose what to sell, what production method and can freely set up any types of business.
Promote Soci al Welfare - A free market economy promotes economic development and prosperity by encouraging innovation and technological progress, and optimum resource allocation
Macroeconomi c Instability - Leads to macroeconomic instability as there is no institution, such as government body that will monitor the economic activities - May be periods of very high unemployment and falling output, and inflation
Profit moti ve - Main objectives : profit maximization
Maximization of Utili ty - Utility maximization can be achieved because of consumers sovereignty and wider choice of goods and services
Externali ties - Prices may not reflect the actual social costs and benefits - Example: pollution to the environment as a result of production activities is not considered in a pricing of a firm
Perfect competition - Producers compete with one another to sell their products - Healthy competition brings about better quality products being offered at lowest possible prices. - Results in efficiency amongst producers
Promote Economic Efficiency - Competition between firms keeps prices down and acts as an incentive for them to be more efficient. - Competition also makes the firms more responsive to consumers wants
Insuffi ci ent Suppl y of Public Goods - Producers motive is to maximize profit. Thus, they would supply products which are profitable - Public goods such as healthcare centers, public transportation, which are not profitable, are not sufficiently provided for. - Therefore, in the capitalist system, there will be lack of public goods exists in the market
Li mited government Intervention - Government intervention is very limited. - Role of the government is confined to the national defense and maintaining law and order. - Market/price mechanism is the interaction between prices of goods and services and price of economic resources to determine what, how and for whom to produce. - Prices are determined by demand and supply of each goods and services
The types of Economics System Socialistic or Command Economy @ Soci al ism
- An economic system in which the government owns and manages the factors of production - Government solves the fundamental economic problems - A government planning office decides what will be produced, how it will be produced, and for whom it will be produced. - Involves great deals of economic planning by state government. - The price mechanism has no active role in a pure command economy since market price is rarely used. - Examples of countries practicing socialism are North Korea, Cuba, Laos and China - The motive of such economy is to make sure that everything that people needs is produced and that everyone gets what they need.
Characteri sti cs Advantages Disadvantages
Economi c planning - The government, through its planning authority, plays its role to direct the nations resources in accordance with specific national goals
Economic free from serious probl ems - There are no serious inflation and unemployment problems because the government is supposed to control them - Unemployment could be largely avoided if government makes a careful plan in allocating its labor
Inefficiency - In the absence of price system, planning is likely to involve inefficient use of resources - This is because the prices of goods and services do not reflect their relative scarcity, so a rational decision is hard to make
Public ownership of Resources - Individuals are not allowed to own productive resources - The government controlled resources by carefully planning their allocation according to the planning requirement and the needs of the society
Equitabl e income distribution - There is more equitable income distribution as government considers the needs of the society
Lower economic growth - Slow economic development and growth happens because there is no freedom of choice and enterprise. - Individuals are not sufficiently rewarded since all profits belong to government. - In the absence of competition and profit motive, research and development will slow down and there is no incentive for firms to be involved I product innovation and invention - All of which would lead to economic inefficiency and lower economic growth compared to that in a market economy.
No/ very limited freedom - There is almost no economic freedom for individuals. For instant, individuals do not have the choice of choosing what they want as decision is made by government authority. - They also cannot set up their own business enterprises as all enterprises and their profits belong to the government.
Minimi ze externaliti es - Social repercussion of production and consumption, such as the effects on the environment, could be minimized with close monitoring system done by the government
Loss of economi c freedom - Workers would have no choice where to work and consumers would have no choice what to buy. - Therefore, they are unable to maximize utility.
The types of Economics System Mixed Economic System
- It has features of both market system aforementioned before - Most countries are mixed economies, though some are close to the command economy while others are nearer to the free market economy - Usually, individuals have economic freedom, but the government owns some business and provides some goods and services to the citizens - Examples : Malaysia, the U.K and Singapore - Characteristics: o There is both private and public ownership of economic resources. o The government and private sector interact each other in solving economic problems. o Many goods and services are allocated through the markets at prices determined by demand and supply. o Consumers are free to purchase what they want and workers are free to choose where to work. o The government may own hospitals and medical services, so that all citizens can use them. o However, it allows other parts of the economy to run on their own so that inefficiency is minimized and people can have the jobs that they want. o The government intervenes in the market to provide a sufficient supply of social goods, maintain law and order, avoid duplication of expensive services, reduce externalities (social costs and benefits), reduce income disparity, control monopolies and stabilize the economy.
The types of Economics System Islamic Economi c System Islamic economics has been defined differently by different scholars. Some of these definitions, arranged chronologically, are: S.M Hasanuz Zaman Islamic economics is the knowledge and application of injunctions and rules of the Shariah that prevent injustice in the acquisition and disposal of material resources in order to provide satisfaction to human beings and enable them to perform their obligations to The Almighty and the society . (Hasanuz Zaman, 1984, p.52) M. A. Mannan Islamic Economics is a social science which studies the economic problems of a people imbued with the values of Islam.: (Mannan, 1986, p.18) Khurshid Ahmad Islamic economic is a systematic effort to try to understand the economic problem and humans behavior in relation to that problem from an Islamic perspective. (Ahmad, 1992, p.19) M. Nehjatullah Siddiqi Islamic economics is the Muslim thinkers response to the economic challenges of their times. In this Endeavour they were aided by the Holy Quran and the Sunah as well as by reason and experience. (Siddiqi, 1992, p.69) M. Akram Khan Islamic economics aims at the study of human falah (well-being) achieved by organizing the resources of the earth on the basis of cooperation and participation. (Khan, 1994, p.33) Syed Nawab Haider Naqvi Islamic economics is the representative of Muslims behavior in a typical Muslim society. (Naqvi, 1994, p.13)
Islamic economics rooted in certain philosophical foundation such as: i. Tawhid (Oneness of The Almighty) which concerned with the Islamic worldview and the concepts of vicegerency (Khilafah). Main concerned are the relationship between man and Creator (Hablum min Allah) and the relationship between man and man (as well as the other creatures) (Hablum min al-nas) ii. Rububiyyah (Allah is the Greatest and Absolute Owner) iii. Tazkiyyah (purification) iv. Ukhwah and tabarru (brotherhood and mutual cooperation) Characteristics as the main objecti ves of all economic activiti es: 1. Freedom of an enterprise so long as not going astray from Shariah ordinance (1:275) 2. Achievement of al-Falah o Comprehensive concept which covers spiritual, moral and socio-economic well being in this worldly affairs and the success in the Doomsday judgments o Quranic verses (2:201) 3. Fair and equitable distribution o Distribution of economic resources, wealth and income o Islam discourages concentration of wealth in few hands and ensure its circulation among all the sections of society o Quranic verses (59:7) o Distribution of wealth through i. Institution of zakat and sadaqat ii. Laws of inheritance and will iii. Abolition of interest iv. Prohibition oaf earnings of wealth through unlawful (haram) means v. Prohibition of ihtikar vi. Prohibition of ikrah vii. Prohibition of gharar and maysir
4. Provision of basic human needs o Basic needs: food, clothing and shelter o State / government will be responsible to provide basic needs for incapable citizens through its comprehensive system of social security o Quranic verses (41:10) 5. Establishment of social justice o Quranic verses (3:92, 70:24, 70:25) 6. Promotion of brotherhood and unity o Quranic verses (2:177, 2:215) o Dr. Khalifa Abdul Hakim writes: Islam desires to mould the economic life of society in such a manner that antagonistic class divisions of millionaires and paupers shall not come into existence. o Shaikh Mahmud Ahmad in his book Economics of Islam, writes, after discussing the injunctions of the Quran regarding prayer and Zakat: The brotherhood of man is not realized only by bowing together of the ruler and the subject, the lord and the peasant, the factory-owner and the wage-earner shoulder to shoulder before One God, but is established on a firm foundation even outside a mosque where the king and the lord and the factory-owner are made jointly responsible for the elementary necessities of life of the subject and the peasant and the wage-earner. o Mr. M. A. Mannan in his book Islamic Economics: Theory and Practice, writes: Salat (prayer) rouses the feeling of equality and brotherhood between the rich and the poor, the high and the low, and Zakat puts that feeling of brotherhood on a firm footing by making the rich and the capitalists responsible for the maintenance of the poor and the needy.
7. Achievement of moral and material development o The economic system of Islam aims at material as well as moral development of the Muslim community. It can be done through its system of taxation and fiscal management particularly through Zakat.
8. Circulation of wealth 9. Elimination of exploitation o To achieve this end Islam has taken many effective measures. First such measure is the abolition of interest or usury which is and has been perhaps the worst instrument of human exploitation. o The Quran calls it riba and declares it a heinous crime which amounts to war against God and Gods messenger.