The economic system can be broadly categorized into

a) Capitalism

Capitalism is a system of economic organization characterized by the private ownership and the use of capital with a profit motive. The most important feature of capitalism is the existence of private property. Everyone has the freedom to form any firm anywhere he likes, provided he has the requisite capital and ability. It is based on the doctrine of laissez-faire which would mean that the state interference in economic activity should be kept down to the minimum.

Top Characteristics

1. Two-class system: Historically a capitalist society was characterized by the split between two classes of individuals—the capitalist class, which owns the means for producing and distributing goods (the owners), and the working class, who sell their labor to the capitalist class in exchange for wages. The economy is run by the individuals (or corporations) who own and operate companies and make decisions as to the use of resources. But there exists a “division of labor” which allows for specialization, typically occurring through education and training, further breaking down the two-class system into sub-classes (e.g., the middle class).

2. Profit motive: Companies exist to make a profit. The motive for all companies is to make and sell goods and services only for profits. Companies do not exist solely to satisfy people's needs. Even though some goods or services may satisfy needs, they will only be available if the people have the resources to pay for them.

3. Minimal Government Intervention: Capitalist societies believe markets should be left alone to operate without government intervention. However, a completely government-free capitalist society exists in theory, only. Even in the United States--the poster child for capitalism, the government regulates certain industries, such as the Dodd-Frank Act for financial institutions. By contrast, purely capitalist society would allow the markets to set prices based on demand and supply for the purpose of making profits.

4. Competition: True capitalism needs a competitive market. Without competition, monopolies exist, and instead of the market setting the prices, the seller is the price setter, which is against the conditions of capitalism.

5. Willingness to change: The last characteristic of capitalism is the ability to adapt and change. Technology has been a game-changer in every society, and the willingness to allow change and adaptability of societies to improve inefficiencies within economic structures is a true characteristic.

b) Socialism

Socialism is an economic system in which the means of production (capital equipment, buildings and land) are owned by the state. The main aim of socialism is to run the economy for social benefit rather than private profit. It emphasizes on work according to one’s ability, and equal opportunities for all regardless of caste, class, and inherited privileges.

Communism is a form of socialism. It was followed in the erstwhile Soviet Union. Communism means an idealistic system in which all means of production and other forms of property are owned by the community as a whole, with all members of the community sharing in its work and income. People are supposed to work according to their capacities and get according to their needs. The aim is to create a classless society and the state machinery is utilized to crush all opposition to achieve this end. The main difference between communism and socialism is that the former believes and adopts violent revolutionary methods to capture the machinery of the government while the latter beliefs in peaceful and parliamentary methods.

Following are the main characteristics of socialism

Public Ownership

It has the public ownership of all the means of production and distribution. This is also known as collective ownership whereby all means are owned, controlled, and regulated by the state. In a socialist economic system, the basic motive of the government is not profit but to get targeted objectives.

Planned Economy

The state is responsible to plan all the economic activities like production, exchange, distribution, and consumption which have great importance in socialism. Since the laws to demand and supply do not operate in this system, the country is more likely to incur speedy economic growth and since the state is solely responsible for the distribution of wealth, the society as a whole prospers.

Classless Society

In a capitalist economic system, there are different living standards like an upper, middle, and lower class. The structure of capitalist society is determined through the financial and economic position of members. However, in a truly socialist society, everyone is equal as far as economic status is concerned.

The state is Responsible for Basic Necessities of Life

Mainly there are six basic needs in life and such needs are promised by central authority i.e state. Those needs are food, shelter, clothing, health, education, and employment. In this economic system stated needs will be provided without any discrimination.

Socialism Provides Equal Opportunity

Although there may not be a complete guarantee of income equality, socialism guarantees to provide equal opportunity. Every potential individual will take into account as per the skills, talent and ability which will determine their success. Thus, their economic rights are automatically protected by their duties and no one is deprived of their basic needs.

The non-existence of Competition and Limited Choice of Consumer Products

Under the socialist economic system, there is the absence of competition in the market. The state has full control overproduction of goods and services. Moreover, since this system focuses on necessities in life, choice in consumer products is limited and only confined to the essentials.

Pricing Mechanism

The pricing process does not freely but works under the control and regulation of the central planning authority. In a socialist economy, prices have vital importance. Two types of prices prevailing in this economic system one are market prices and the other is accounting prices. Market prices are for consumer goods while accounting prices helps managers to take a decision about the production of consumer and investment goods and production method.

c) Mixed Economy

It is neither pure capitalism nor pure socialism but a mixture of the two. In this system, we find the characteristics of both capitalism and socialism. Both private enterprises and public enterprises operate the mixed economy. The government intervenes to regulate private enterprises in several ways. Generally, the basic and heavy industries like industries producing defense equipment, atomic power, heavy engineering goods, etc. are put in the public sector. On the other hand, the consumer goods industries, small and cottage industries, agriculture, etc. are assigned to the private sector. It is realized that in underdeveloped countries, like India, economic development cannot be achieved at the desired rate of growth without any active government help and guidance. Hence, the government in such countries actively participates in economic activities in order to minimize the evils of capitalism and to accelerate economic growth.

A mixed economy possesses the following features:

1. Public Sector:

The public sector is under the control and direction of the state. All decisions regarding what, how, and for whom to produce are taken by the state. Public utilities, such as rail construction, road building, canals, power supply, means of communication, etc., are included in the public sector. They are operated for public welfare and not for profit motive. The public sector also operates basic, heavy, strategic, and defense production industries that require a large investment and have a long gestation period. But they earn profits like private industries which are utilized for capital formation.

2. Private Sector:

There is a private sector in which the production and distribution of goods and services are done by private enterprises. This sector operates in farming, plantations, mines, internal and external trade, and in the manufacture of consumer goods and some capital goods.

This sector operates under state regulations in the interest of public welfare. In certain fields of production, both public and private sectors operate in a competitive spirit. This is again in the interest of society.

3. Joint Sector:

A mixed economy also has a joint sector which is run jointly by the state and private enterprises. It is organized on the basis of a joint-stock company where the majority of shares are held by the state.

4. Freedom and Control:

A mixed economy possesses the freedom to hold private property, to earn a profit, to consume, produce and distribute, and to have any occupation. But if these freedoms adversely affect public welfare, they are regulated and controlled by the state.

5. Economic Planning:

There is a central planning authority in a mixed economy. A mixed economy operates on the basis of some economic plan. All sectors of the economy function according to the objectives, priorities, and targets laid down in the plan. In order to fulfill them, the state regulates the economy through various monetary, fiscal and direct control measures. The aim is to check the evils of the price mechanism.