The system in which economic system is controlled and regulated by the government, so as to ensure welfare and equal opportunity to the people in a society is called socialist system. This system is opposite to the market system. In the socialist system, all economic decisions are taken by the State i.e. the government. The state owns all the resources of production. Keeping in mind the need of the society, the government decides how much to produce, how much to invest in which sector, resource distribution, production distribution, etc.

In the socialist system ‘social welfare’ rather than ‘profit’ is the center. The government governs the factories, sets the production target and also . sets the prices of good and services produced. Farming is also owned by the state. Government makes payment to farm labourers on the basis of their ability. It should be well noted that socialist system originated because of limitations and failures of market system. Countries like Russia and China have achieved fast economic progress by adopting this system.

Features of Socialist System:

1. Resources are owned by the state i.e. government.
2. All the economic decisions are taken by the state.
3. Social welfare and not profit is at the center of economic activities.
4. Labourers are paid wages in return of work they do in government managed factories.

Benefits of Socialist System:

1. Production is done on the basis of to the needs of the society. Hence, resources are not wasted in producing unimportant and luxurious things.
2. Resources do not get wasted.
3. Disparity of income and property is removed.
4. Consumers do not get exploited. Limitations of Socialist System:
5. The government owns the resources of production. Hence, people do not get encouragement and motivation to increase production.
6. There is no competition. So, new research does not take place much in the economy.
7. There is lack of individual freedom in this system.
8. There is a total control of the state. This creates the fear of bureaucracy.