Characteristics of an Economic System
Economic systems differ from country to country according to the nature of economic institutions which a country chooses for the satisfaction of people’s wants. However, all economic systems are chracterised by the following features:
- National Entity: An economic system always covers the entire country. However, more than one country may adopt the same type of economic system.
- Institutional: An economic system comprises various institutions which a nation has devised and adopted for satisfying the needs of its people. Households, firms, industries, Government, price mechanism, economic planning are examples of such institutions.
- Interdependence: The different institutions of an economic system do not work in isolation from one another. Rather they are interdependent and interacting. Therefore, proper balance and coordination between them is necessary for the smooth functioning of the economic system.
- Scarcity of Resources: Every economic system has limited resources at its disposal in comparison with the demand for these resources.
- Need Satisfaction: All the activities of an economic system are undertaken for the satisfaction of human wants which are unlimited.
- Dynamic: An economic system is a dynamic rather than a static organisation. It is made up of man-made institutions. These institutions are created. Destroyed and modified as per the needs of the people, Some economic systems change slowly while others change fast. For example, Indian economic system changed very little during 1947-1990. But since 1991 there have been rapid changes in it.
