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Before a society chooses an Economic System, it keeps three major questions in mind
The striking answers to these questions depend on the market forces of supply and demand.
In economic system called Capitalism, only those consumer goods will be produced that are in demand and thus, can be sold profitably in domestic as well as in foreign markets. For instance, if pens are in demand, pens will be produced and if pencils are in demand, pencils will be produced. Also, in the very system, if labour is cheaper than capital, then the methods of production will be more labour-intensive.
In a Capitalist society, the distribution of goods is not done on the basis of needs of people but on the basis of purchasing power of people. Therefore, in this economic system, if one has to buy something, one needs to have money. The poor need low cost housing but the poor do not have the purchasing power, thereby, this low cost housing will not be taken into account for demand. As a result, this will not be produced and supplied. In general, such a society would imply that a majority of the people would be left behind without a chance to improve their quality of life.
On the other hand, in a Socialist society, the government, taking into account the needs of people, decides what goods would be produced. In this system, it is the underlined assumption that the government is fully aware of the desires of people in the country, while not giving importance to the desires of individual consumers. In this system, the government governs the way in which the goods are produced and distributed. Unlike Capitalism, the principle of socialism is based on what people need and not on what they can afford to purchase. A socialist society has no private property since everything is owned by the state itself. Such economic system is prevailing in Cuba and China.
Many a economic system is mixed one in which the government and market work together in synchronization. The market provides whatever goods and services it can and the government provides essential goods and services which the market fails to provide.
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