Economics and Emerging Markets Essays - Economic Systems

Abstract Assignment Chapter 4: Economics and Emerging Markets A centrally planned economy can be described as an economy where all the resources are in control of the government and the government is controlling all the economic activities. The purpose behind a central economic system is to spread equality among all the individuals and make the government responsible for providing basic necessities to the individuals. During time, it was proven that this systems had many flaws and the main flaws were wastage of scarce resources due to lack of product quality and ignoring the buyers demand; ignoring innovation, economic development and poor living standards; less popular in comparison with other economic systems; and the consumers got tired of all the empty promises made by the system in context of providing adequate food, housing and healthcare. The mixed economic system is a mixture of central and private economic systems as the economic resources are shared between public and government, however the government holds control of certain sectors which are important for national security and long term stability. All over the world, most of the countries which were following mixed economy system are now reverting to privatization due to the efficiency and innovational benefits it yields. The mixed economic system follows the functions of supply and demand, along with option of free choice to the buyers and sellers, mixed economy also offers the individuals satisfaction and reward for their efforts. In mixed economy the government plays the role of a moderator enforcing antitrust laws, preserving property rights, using fiscal and monetary policies when deemed necessary, and providing political stability for economic growth. The economist have developed different measure for judging the rate of economic development of a country and usually the development of a country is measured in comparison of another country. The measures used are Gross National product, Gross Domestic Product, Purchasing Power Parity and Human Development Index. The nation goes through the process of economic transition to change the fundamental economic organization to create free market institutions by having macroeconomic stabilization; freeing the economic activity from controlling forces; legalization of private sector and privatization of government owned organizations; removing the barriers on free trade, investment and currency flows; and development of a social welfare system. The businesses in central economic system face challenges like poor management; shortage of capital for economic development, difference in business culture; and the degradation of health conditions which leads to lack of motivation.