Capitalistic, Socialistic and Mixed Economy
An economic system is the combination of those devices and institutions that decide the way in which nation’s resources are allocated in order to satisfy human wants. There are three types of economies on the basis of ownership are: Capitalist economy, Socialist economy and Mixed economy.
Capitalist economy is an economic system in which means of production are owned, controlled and managed by private individuals, who use these resources to generate profits with minimum interference of government. The features of capitalist economy are: private property, profit motive, laissez faire, price mechanism, freedom of enterprises and occupation. The merits of capitalist economy are: economic freedom, automatic working, optimum use of resources, high standard of living, etc. The demerits of capitalist economy are: inequalities of income and wealth, class struggle, etc.
Socialist economy is an economic system in which means of production are owned by the entire society and operated and controlled by public authority. The features of socialist economy are: economic and social equality, maximum social welfare, collective ownership, economic planning, etc. The merits of socialist economy are: no class struggle, no scope of classes, efficient utilisation of resources, balanced economic development, increase in productive efficiency, etc. The demerits of socialist economy are: loss of consumer’s sovereignty, expenditure on planning, etc.
The mixed economy is an economic system in which both public and private exercise economic control simultaneously. The features of mixed economy are: co-existence of public sector and private sector, individual liberty, price mechanism and regulated price, profit motive and social welfare, co-existence of capitalist and socialist features, etc.
The merits of mixed economy are: optimum allocation of resources, economic and political freedom, rapid economic development, limited concentration of economic power, etc. The demerits of mixed economy are: corruption and black marketing, short -lived nature, inefficient operation, poor performance of public sector, etc.
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State the advantages of a mixed economy.Marks:2
Advantages of a mixed economy are:
(i)Co-existence of features of capitalist and socialist system- The merits of both the capitalistic and a socialistic economy are retained in a mixed economy. Its smooth functioning is supported by the institutions of both the economic systems.
(ii)Possibility of avoiding fluctuations in business cycle-Economic stability is a merit of a mixed economy. It tries to avoid the fluctuations in the economy by planning and state regulations.
(iii)Reduced incidence of exploitation of working class-A mixed economy keeps a check on the concentration of power in the hands of the producers due to the presence of the government in it.Thus, there is reduced exploitation of the working class.
Describe controlled or planned economy.Marks:2
Controlled or planned economy refers to a socialistic economy, in which the state government has complete control over all economic activities of the state. In this type of economic system, the means of production are owned by the entire society and operated by the public authority according to a general economic plan for maximising social welfare.
Give any four characteristics of a mixed economy.Marks:2
Characteristics of a mixed economy are:
(i)Preservation of freedom - There exists economic and political freedom. Although economic freedom exists but it is not absolute. It is subject to certain restrictions imposed by the government.
(ii)Co-existence of private and public sector - Public sector represents that part of the economy which is controlled and managed by the state or the government. The private sector, on the other hand includes that part of the economy which is owned and managed by the private individuals.
(iii)Government control over private enterprises - There is no room for unregulated private sector. The government regulates the private sector through taxation, subsidies, monetary policy, etc.
(iv)Promotion of social welfare - This is a major objective of a mixed economy. The government makes efforts to promote the welfare of the entire community. It tries to minimise economic and regional inequalities.
What do you understand by socialist system?Marks:1
Socialist economic system is defined as an economic system in which the means of production are owned by the entire society and operated by the public authority according to a general economic plan for the benefit of the entire community.
What is a capitalistic economy?Marks:1
Capitalistic economic system is a system wherein means of production are owned by private individuals, who use these resources to earn profits and in which the state intervention is minimum so that economic activities are mostly unplanned and uncoordinated.