Advantages and Limitations of Different Economic Systems

The assignment provides a detailed analysis of four main types of economic systems: market economy, command economy, mixed economy, and Islamic economy. It highlights the advantages and disadvantages of each system, providing a comprehensive understanding of their characteristics and implications.

Department of Management Information Systems
Course Name: Microeconomics
Course Code: MIS-107
Assignment on
“Advantages and Limitations of Different Economic
Systems”
Submitted To
Md. Ariful Islam
Assistant Professor
Department of MIS, FBS,
University of Dhaka.
Submitted By
Tazrian Ferdous Farita
Roll: 029-15-058, Section: B,
Department of MIS, FBS,
University of Dhaka.

Advantages and Limitations of Different
Economic Systems
An economic system is a malleable system to regulate
production, resource allocation, exchange, and distribution of
goods and services in a society or a geographic area. Economic
system can be categorized into four main types. These are Market
Economy, Command Economy, Mixed Economy, and Islamic
Economy.
Market Economy
A market economy is an economy where most resources are
owned and controlled by individuals, and allocated through
voluntary market transaction governed by the laws of demand
and supply.
Advantages
 In a market economy, prices of goods and services are
determined by the laws of demand and supply.
 Producers compete with each other by offering wider variety
of goods, therefore consumers have more choices which
might lead to lower prices.
 It provides a competitive edge and increases the chance for
wealth.
 Competition pushes businesses to be efficient keeping the
costs down and production high.
 Encourages successful businesses to invest in companies,
thus increasing the quality of productions.
Disadvantages
 Poor working conditions can result due to lack of government
regulations.

 Private firms will not be willing to provide public goods
because it’s almost impossible to charge any payment from
the consumers.
 Free market may encourage harmful goods as private firms
will provide anything that is profitable.
 Inequality in wealth and mobility exists because wealth
tends to generate wealth.
Command Economy
In command economy, centralized government controls the
means of production and a significant portion of the economic
structure. It doesn’t rely on the laws of demand and supply.
Advantages
 In command economy, production rates can be adjusted to
meet the exact demands of the population which is effective
in lessening the chances for a shortage to occur.
 Manipulates large amount of resources for large projects
without regulatory issues.
 It can transfer societies to conform to the government’s
vision.
 Command economy government can set wages and job
openings to create the unemployment rate and wage
distribution that it sees fit.
 Government can tailor goods and services to benefit the
common good without concerning about profits and losses.
Disadvantages
 Rapid change can completely ignore society’s needs, forcing
the development of a black market and coping strategies.
 Command economy discourages innovation.
 Prices are set by the central plan.
 Struggles to produce the right exports at global market
prices.
 Command economy react slowly to change because power is
centralized.

 Efficiency is compromised when the government acts as a
monolith, controlling every aspect pf a country’s economy.
Mixed economy
A mixed economy is a system that combines the characteristics of
a market economy and a command economy. It means that part
of the economy is left to the free market, and part of it is
controlled by the government.
Advantages
 A mixed economy distributes goods and services to where
they need to be.
 It ensures that income is distributed equitably.
 Businesses are free to decide what to produce and price to
pay, but there are government regulations on the
environment.
 It encourages private initiative.
 Monopoly is prevented because of the joint participation in
economic activities by both the private and public sectors.
 It can create greater quality and provide a “Safety Net” to
prevent people from living in absolute poverty.
 It automatically allocates capital to the most efficient
producers.
Disadvantages
 Mixed economy is criticized by free market economists for
allowing too much government intervention.
 There is usually high level of corruption and
mismanagement.
 Efficiency hardly occurs because of involvement of the state.
 It doesn’t eliminate the possibility of monopolies.
 The state has the power to change its mind.
 Mixed economy often produces high taxation responsibilities.

Islamic Economy
Islamic economy system is a collection of rules, values and
standards of conduct that organize economic life and establish
relations of production in an Islamic society. It is a theoretical
construct of an industrial economy whose members follow the
Islamic faith.
Advantages
 Islamic economy ensures full utilization of economic
resources for the welfare of the people.
 Islamic economy attracts larger number of market.
 It provides equal chances of employment and economic
development to all the people irrespective of color and cast.
 It advocates developing good relations with Muslim world
and others.
 Islamic economy gives the concept of Zakat instead of tax
system.
 It encourages efforts for achieving greater stability.
 Islamic economic encourages fair distribution of wealth.
 It promotes lucidity and clarity
Disadvantages
 It is based on the moral values and ethics so it’s difficult to
implement generally.
 Calculation and collection of Zakat cannot be verified.
 Interest is totally forbidden in Islamic economy.
 It is based on honor system, which often encourages fraud
and non-payment.
 Sometimes it is not possible to collaborate with non-Muslim
societies.