TYPE S OF ECON OMIE S
Ques.J What is an economy? How can it be classified?
Every activity which has economic
Ans. Economy is the sum total of economic activities of a country .
the economy. The basic functions of
rnotive is termed as economic activity and thus constitutes a part of
an economy are:-
a) Produc tion
b) Consum ption
c) Investm ent
nity. Economic system is the
Thus, economy can be defined as the total of economic life of a commu
of goods and services takes place in a
institut ional framew ork within which produc tion and consum ption
produc tive resourc es of an econom y are
countr y. It refers to those devices and institut ions throug h which
economies and two ways in which they
utilized for satisfy ing human wants. There ·are differe nt kinds of
can be classifi ed are:-
ON THE BASIS OF LEVE L OF DEVE LOPM ENT
Develo ped
. I
Deve1opmg
I
Underd evelop ed
ON THE BASIS OF OWNE RSHIP OF
FACT ORS OF PROD OCTIO N
\
Sociali sm Mixed Econo my
Capita lism
ial econom ies OR as simple and comple x
The econom ies can also be describ ed as agricu ltural and industr
econom ies.
s, merits and demer its.
Ques.2 Explai n Capita listic form of econom y along with its feature
or that system of econom ic organi zation
Ans. Capita list econom y is a kind of an institu tional framew ork
lly prevai ls.
in which compe tition and private owner ship of the proper ty genera
Some of its feature s are:-
proper ty is allowe d. AU the
i) Private proper ty and inherit ance- In capital ist econom y, private
the privat e owner ship. Right of
means of produc tion like land, capital , macl ine etc are under
ing the choice of the owner .
inherit ance allows the proper ty to be transfe rred to anyon e accord
by the princi ple of price
ii) Price mecha nism- Both consum ers and produc ers are divide d
the intera ction of deman d and
mecha nism. Under capital ist econom y prices are determ ined by
extern al source s.
supply withou t interfe rence from the govern ment or any other
dual is indepe ndent and
iii) Freedo m of enterp rise/ occupa tion- Under this system , every indivi
tion.
free to choose the occupa tion accord ing to his means of produc
ment does not interfe re in day to
iv) No govern ment interfe rence -In capital ist econom ~ the govern
and order and safegu ard the
day econom y activit ies .. Its main functio n is to mainta in law
interes t of the citizen s.
, Profit motive- Under this system, profit .moti
ve plays the moS t Imp orta nt role. Decision.s
,·cgarding what, how and whom to produce . of prof it and not soc1a1
are taken on the b asis
welfare.
Con sum er is the king- There is a freedom of. . . It
choice for t he consu mers in capi tahs t economy.
is the choice and preference of the consume . .
th atur e of goods and services
rs that dete rmm es e n
prod uced in the economy.
The main merits of this system are-
i) Abu ndan ce of goods: All the basic dec1. swns
.
of wha t to pro d uce, h0 w to prod uce and for who m
to prod uce are take n by prod ucer s. Ever y prod .
ucer give s at t en t·ion to cons ume rs' taste and
preferences. Hence, ther e are larg e vari.ety f d d . s prod uced in the econ omy .
o goo s an serVIce
ii) Best utilization of resources: A.II natu ral reso
urces are used to thei r opti mum level as
prod ucti·on 1s
· unde · a sole
rtak en with purp ose: of ·earn mg
· pro fit 1 and no scop e for was tage s at
all.
iii)Technologica · l prog · type of
ress : Jo this economy, th ere 1s · am pie scope of new inve ntio n. To get
.
mor e prof it every prod ucer takes initiative .
to develop new tech niqu es in prod ucti on.
iv) Ince ntiv e to hard wor k: In this system, ince
ntives are given to the effic ient wor kers in
kind . This mea ns ever y wor ker should get cash 0 ~
rew ard acco rdin g to his abil ity. Hen ce, wor
try to wor k mor e and mor e, ther efor e, total kers will
outp ut will also incr ease .
v) Eco nom ic free dom : The fore mos t adva ntag
e of this system is that ever ybo dy enjo ys'
free dom as one can spen d one' s income acco econ omi c
rdin g to one' s wishes. Prod ucer s hav e com
free dom to inve st in any business or trad e. plet e
vi) Incr ease in prod ucti on and stan dard of livin
g: The prod ucer s alwa ys enco urag ed to
best qual ity of prod ucts . Thu s, tech nica l deve prod uce
lopm ent will lead to incr ease in high er
prod ucti vity . Vari ety of goods at chea p rate
s mak e it easy to be with in the reac h of poo
wea ker sections of society. This resu lts in r and
rise in thei r stan dard of livin g.
The main dem erits of this syst em are: -
i) Ineq uali ty in the distr ibut ion of inco me and
wea lth: In capi talis tic econ omy the mea
prod ucti on are own ed by the capi talis t, who ns of
utili zed thes e reso urce s for self - inte rest
for the social inte rest. The refo re in a capi and not
talis tic econ omy the rich beco me rich er
beco me poo rer. and poo r
ii) Clas s conf licts : In capi talis t econ omy maj
or shar e of inco me and reso urce s is con
upp er class of the society, whil e othe rs rem trol led by the
ain dep rive d of the basi c ame nitie s of life.
inte rests of the wor kers and man agem ent Thu s, the
are diff eren t. Bot h of them wan t to max
own indi vidu al prof it or earn ings . This resu imiz e thei r
lts i!) clas s conf lict in capi talis t econ omy
iii) Exp loita tion : The main defe ct of capi tafis .
m is the expl oita tion of labo r. Lab o.rer s
in com pari son to thei r wor king hou rs. The get less wag es
wag es less than thei r mar gina l prod ucti
suff icien t for thei r livel ihoo d. vity are not
iv) Was tage of reso urce s: Due to the adv ance
men t of tech nolo gy the old tech nolo gy and
mac hine ry are disc arde d. The con sum er
pref eren ces and ch,oices are con tinu ousl
henc e con sum er disc ard the con sum er good y chan ged ,
s rapi dly.
v) Eco nom ic fluc tuat ion: It is diffi cult to esta
blis h a bala nce betw een the dem and and
The re will be trad e boo m or rece ssio n or supp ly.
the freq uen t fluc tuat ions in pric es. All
rela ting to prod ucti on are take n by the the deci sion s
capi talis t and due to wro ng ~sti mat es of
requ irem ents ; imb alan ce in prod ucti on futu re
is gen eral ly foun d. This mea ns the stat
and unc erta inty . e of inst abil ity
Ques.J What is an economy? How can it be classified?
Every activity which has economic
Ans. Economy is the sum total of economic activities of a country .
the economy. The basic functions of
rnotive is termed as economic activity and thus constitutes a part of
an economy are:-
a) Produc tion
b) Consum ption
c) Investm ent
nity. Economic system is the
Thus, economy can be defined as the total of economic life of a commu
of goods and services takes place in a
institut ional framew ork within which produc tion and consum ption
produc tive resourc es of an econom y are
countr y. It refers to those devices and institut ions throug h which
economies and two ways in which they
utilized for satisfy ing human wants. There ·are differe nt kinds of
can be classifi ed are:-
ON THE BASIS OF LEVE L OF DEVE LOPM ENT
Develo ped
. I
Deve1opmg
I
Underd evelop ed
ON THE BASIS OF OWNE RSHIP OF
FACT ORS OF PROD OCTIO N
\
Sociali sm Mixed Econo my
Capita lism
ial econom ies OR as simple and comple x
The econom ies can also be describ ed as agricu ltural and industr
econom ies.
s, merits and demer its.
Ques.2 Explai n Capita listic form of econom y along with its feature
or that system of econom ic organi zation
Ans. Capita list econom y is a kind of an institu tional framew ork
lly prevai ls.
in which compe tition and private owner ship of the proper ty genera
Some of its feature s are:-
proper ty is allowe d. AU the
i) Private proper ty and inherit ance- In capital ist econom y, private
the privat e owner ship. Right of
means of produc tion like land, capital , macl ine etc are under
ing the choice of the owner .
inherit ance allows the proper ty to be transfe rred to anyon e accord
by the princi ple of price
ii) Price mecha nism- Both consum ers and produc ers are divide d
the intera ction of deman d and
mecha nism. Under capital ist econom y prices are determ ined by
extern al source s.
supply withou t interfe rence from the govern ment or any other
dual is indepe ndent and
iii) Freedo m of enterp rise/ occupa tion- Under this system , every indivi
tion.
free to choose the occupa tion accord ing to his means of produc
ment does not interfe re in day to
iv) No govern ment interfe rence -In capital ist econom ~ the govern
and order and safegu ard the
day econom y activit ies .. Its main functio n is to mainta in law
interes t of the citizen s.
, Profit motive- Under this system, profit .moti
ve plays the moS t Imp orta nt role. Decision.s
,·cgarding what, how and whom to produce . of prof it and not soc1a1
are taken on the b asis
welfare.
Con sum er is the king- There is a freedom of. . . It
choice for t he consu mers in capi tahs t economy.
is the choice and preference of the consume . .
th atur e of goods and services
rs that dete rmm es e n
prod uced in the economy.
The main merits of this system are-
i) Abu ndan ce of goods: All the basic dec1. swns
.
of wha t to pro d uce, h0 w to prod uce and for who m
to prod uce are take n by prod ucer s. Ever y prod .
ucer give s at t en t·ion to cons ume rs' taste and
preferences. Hence, ther e are larg e vari.ety f d d . s prod uced in the econ omy .
o goo s an serVIce
ii) Best utilization of resources: A.II natu ral reso
urces are used to thei r opti mum level as
prod ucti·on 1s
· unde · a sole
rtak en with purp ose: of ·earn mg
· pro fit 1 and no scop e for was tage s at
all.
iii)Technologica · l prog · type of
ress : Jo this economy, th ere 1s · am pie scope of new inve ntio n. To get
.
mor e prof it every prod ucer takes initiative .
to develop new tech niqu es in prod ucti on.
iv) Ince ntiv e to hard wor k: In this system, ince
ntives are given to the effic ient wor kers in
kind . This mea ns ever y wor ker should get cash 0 ~
rew ard acco rdin g to his abil ity. Hen ce, wor
try to wor k mor e and mor e, ther efor e, total kers will
outp ut will also incr ease .
v) Eco nom ic free dom : The fore mos t adva ntag
e of this system is that ever ybo dy enjo ys'
free dom as one can spen d one' s income acco econ omi c
rdin g to one' s wishes. Prod ucer s hav e com
free dom to inve st in any business or trad e. plet e
vi) Incr ease in prod ucti on and stan dard of livin
g: The prod ucer s alwa ys enco urag ed to
best qual ity of prod ucts . Thu s, tech nica l deve prod uce
lopm ent will lead to incr ease in high er
prod ucti vity . Vari ety of goods at chea p rate
s mak e it easy to be with in the reac h of poo
wea ker sections of society. This resu lts in r and
rise in thei r stan dard of livin g.
The main dem erits of this syst em are: -
i) Ineq uali ty in the distr ibut ion of inco me and
wea lth: In capi talis tic econ omy the mea
prod ucti on are own ed by the capi talis t, who ns of
utili zed thes e reso urce s for self - inte rest
for the social inte rest. The refo re in a capi and not
talis tic econ omy the rich beco me rich er
beco me poo rer. and poo r
ii) Clas s conf licts : In capi talis t econ omy maj
or shar e of inco me and reso urce s is con
upp er class of the society, whil e othe rs rem trol led by the
ain dep rive d of the basi c ame nitie s of life.
inte rests of the wor kers and man agem ent Thu s, the
are diff eren t. Bot h of them wan t to max
own indi vidu al prof it or earn ings . This resu imiz e thei r
lts i!) clas s conf lict in capi talis t econ omy
iii) Exp loita tion : The main defe ct of capi tafis .
m is the expl oita tion of labo r. Lab o.rer s
in com pari son to thei r wor king hou rs. The get less wag es
wag es less than thei r mar gina l prod ucti
suff icien t for thei r livel ihoo d. vity are not
iv) Was tage of reso urce s: Due to the adv ance
men t of tech nolo gy the old tech nolo gy and
mac hine ry are disc arde d. The con sum er
pref eren ces and ch,oices are con tinu ousl
henc e con sum er disc ard the con sum er good y chan ged ,
s rapi dly.
v) Eco nom ic fluc tuat ion: It is diffi cult to esta
blis h a bala nce betw een the dem and and
The re will be trad e boo m or rece ssio n or supp ly.
the freq uen t fluc tuat ions in pric es. All
rela ting to prod ucti on are take n by the the deci sion s
capi talis t and due to wro ng ~sti mat es of
requ irem ents ; imb alan ce in prod ucti on futu re
is gen eral ly foun d. This mea ns the stat
and unc erta inty . e of inst abil ity
