Economic System

• Three Fundamental Economic Questions

  • What to produce?
  • How to produce?
  • For whom to produce?
• Economic System


  Organized method of producing and distributing goods, services, and resources in a society that answers the three basic economic questions
• Types of Economic Systems

  • Market System
  • Command System
  • Mixed System
• Market System


  • Decentralized decision making
  • Price mechanism is vital
• Command System


  • Collective ownership of resources
  • Allocative decisions made by government
• Mixed Economy


  • Most decisions made by individuals and firms through market interaction
  • Government may control relative prices, incomes, and production/consumption patterns
• Islamic Economic System


  A means, organization, institution, or mechanism used by society to resolve their fundamental economic problems in conformity with Islamic teachings
• Objectives of Islamic Economy


  • Economic and spiritual well being
  • Ukhuwwah Islamiyyah (Islamic brotherhood)
  • Attainment of social justice and equity
  • Mobilization of resources to strengthen and spread the message of Islam
  • Efficient and just allocation of resources
• Islamic Economic System


  • Ultimate owner is only Allah
  • Humankind has a role as trustee/vicegerent
  • Accountable in the hereafter for resource management
  • Allah is the sole decision maker
  • Quran and Prophet's tradition are the main sources of shariah
• Principles of Decision Making in Islamic Economics

  • Do not infringe the right/welfare of others
  • Do not adopt usury
  • Do not practice gambling
  • Avoid vague and dubious transaction (gharar)
  • Do not manipulate the price
  • Encourage moderation
  • Do not use unethical marketing & distribution strategies
• Incentives in Islamic Economics

  • Profit (must be achieved through activities permitted by shariah)
  • Social justice (Muslim must always strive to create extra income to help others)
  • Well-being in hereafter (managing resources according to shariah will be rewarded)