Essay on Economic Systems

An economic system is a collection of institutions and organisations directing and organising ownership, production and distribution of goods and services.

The type of economic system that exists in Euphoria is a Market Capitalist System. This is a system used in countries like Australia, South Africa and the United States. Since most production, such as agriculture, manufacturing, banking and communications, occurs in the private sector rather than the government sector, private enterprise clearly dominates the market capitalist system. In the case of Euphoria, private enterprise dominates 70% of the system, while the government controls the remaining 30% of the system.

Euphoria would use the market mechanism to make decisions about what type of goods and services people want produced, and how much they would be paid. The market mechanism is a system where by the free forces of demand and supply for goods and services set relative prices, which in turn act as ‘signals’ to producers of consumer wishes for resource allocation.

Euphoria has a mixed ownership system, as 70% of enterprises are privately owned, while 30% of enterprises are state-owned. Sole traders, partnerships, private companies, public companies and franchises help make up the private sector of the economy.

The country might decide to increase privatization for a number of reasons. Firstly, unlike private enterprise, not all goods and services produced by the government are aimed at making a profit and consequently, this will cost the government a lot of money as most of the time, they are not receiving any profits to make up for the money spent. So the government in Euphoria may decide to privatize some state-owned enterprises in order to lower the cost to governments of running these activities.

Another reason to increase privatization is that the sale of the state-owned enterprise to private owners will raise money for the government. This will allow the government to spend the extra money on more important things. e.g. Schooling in rural areas.

In other cases, handing ownership over to the private sector may be in the best interests of the consumers. This is because private enterprises are more likely to provide better goods and services to consumers, as they are motivated to make profit, resulting in the business being run more efficiently.

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