University of Dhaka - MIS-107: Economic Systems Report Analysis

This report provides a comprehensive analysis of different economic systems, including market, command, mixed, and Islamic economies. It explores the advantages and disadvantages of each system, such as the efficiency and consumer choice in market economies versus the potential for resource allocation and social welfare in command economies. The report also discusses the characteristics of mixed economies, which combine elements of both market and command systems, and the principles of Islamic economics. The analysis covers various aspects, including production, resource allocation, exchange, and distribution of goods and services. It highlights the impact of competition, government regulation, and ethical considerations within each economic model. The report also examines the potential for wealth inequality, innovation, and overall economic stability within each system. The report is a detailed study on the different economic systems and their impact.

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.