---
title: "Economic system; capitalistic economy"
subject: "Engineering Economics"
chapter: 1
key: "semester_6/engineering_economics:economic-system-capitalistic"
source: https://www.bctengineer.com/q/semester_6/engineering_economics/economic-system-capitalistic
site: BCT Engineering
---

# Economic system; capitalistic economy

Engineering Economics · Chapter 1: Introduction

- Asked in: 2065 Chaitra, 2+2 marks
- Video: [economic system capitalism socialism and mixed economy, economic system, business environment](https://www.youtube.com/watch?v=kSQvYeTuxwM) — DWIVEDI GUIDANCE
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_6/engineering_economics/economic-system-capitalistic
- Whole chapter: https://www.bctengineer.com/md/semester_6/engineering_economics/chapter-1

## Question

Define economic system. Discuss briefly on the characteristics of capitalistic economy.

## Short answer

An economic system is society's method of allocating scarce resources to production, exchange and distribution. A capitalistic economy features private property, freedom of enterprise, profit motive, market-determined prices, competition and limited government intervention, often resulting in unequal income.

## Answer

#### Economic system
An economic system is the way in which a society organises the use of its scarce resources to decide what, how and for whom to produce. It includes the institutions and rules for production, exchange and distribution. The three types are capitalistic, socialistic and mixed.

#### Characteristics of a capitalistic economy
1. **Private ownership.** Land, factories and capital are owned by individuals, who may also inherit and transfer property.
2. **Freedom of enterprise and choice.** Producers choose what to make; workers choose their jobs; consumers choose what to buy (consumer sovereignty).
3. **Profit motive.** Production is guided by the aim of making profit.
4. **Price mechanism.** Prices determined by demand and supply allocate resources; no central planning.
5. **Competition.** Many sellers compete, pushing efficiency and quality.
6. **Limited role of government.** The state protects property and contracts and provides basic services only.
7. **Inequality.** Income and wealth are unequally distributed; this is a major drawback along with monopoly power and trade cycles.

Examples: the USA and the United Kingdom (with some government control today).

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. In capitalism resources are allocated by:
   A. Lottery
   B. Central planning
   C. Prices set by demand and supply
   D. State quotas
   Answer: C. No central planning. (Key point: Price mechanism)

2. Production in capitalism is guided by:
   A. Social welfare only
   B. Government orders
   C. Equality
   D. Profit motive
   Answer: D. Private firms seek profit. (Key point: Profit motive)

3. A major drawback of capitalism is:
   A. Inequality and monopoly power
   B. No competition
   C. No private property
   D. State control of prices
   Answer: A. Also trade cycles. (Key point: Drawback)

## Related in Engineering Economics

- [Economic system; advantages of socialistic economy](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Aeconomic-system-socialistic-advantages) — Engineering Economics, chapter 1
- [Define engineering economics; capitalistic or socialistic economy](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Adefine-ee-capitalistic-socialistic) — Engineering Economics, chapter 1
- [Explain the economic system](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Aexplain-economic-system) — Engineering Economics, chapter 1

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