Economic Environment (Economic System)

Economic environment refers to all the economic surroundings that influence project activities. It consists of economic parameters.

Important components of economic environment are :
a) Economic System: Economic system determines the scope of private sector participation and market forces. The models of economic system are:
  • Free Market Economy: This system is based on private sector ownership of the factors of production. Profit serves as the driver of economic engine. The comparative market mechanism guides project decisions. There is freedom of choice. Individual initiative is encouraged.
  • Centrally Planned Economy: This system is based on public ownership of the factors of production. The economy is centrally planned, controlled and regulated by the government. There is no consumer sovereignty. Public enterprises play a dominant role in projects.
  • Mixed Economy: This system is a mix of free market and centrally planned economies. Both public and private sectors coexist. The public sector has ownership and control of basic industries including utilities. The private sector owns agriculture and other industries but is regulated by the state.

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