Classification on the Basis of Ownership
An economy is a framework within which all economic activities take place.
Economies are classified on the basis of ownership as capitalist economy, socialist economy and mixed economy. A capitalist economy is an economic system in which there is private ownership of capital and production inputs, and the production of goods and services are undertaken with the motive of profit making. It is also known as Laissez-faire economy. The features of capitalist economy are private property and inheritance, freedom of enterprise and contract, freedom of consumption, market mechanism, profit motive and competition. The merits of capitalist economy are abundance of goods, best resources utilization, technological progress, cheap and best goods, incentive to work hard, economic freedom and increase in production and standard of living. The demerits of capitalist economy are inequalities in the distribution of income and wealth, class conflict, unemployment, exploitation, wastage of resources, economic fluctuations, self-interest in place of social welfare and unbalanced development. A socialist economy refers to a government ownership of the means of production, planning by the government and income redistribution. The features of socialist economy are social property, government as the sole producer, social welfare, economic planning, economic equalities and absence of competition. The merits of socialist economy are better allocation of resources, social justice, economic stability, social security and rapid economic growth. The demerits of socialist economy are: no incentive for hard work, loss of freedom, loss of efficiency, red-tapism and concentration of economic and political powers.
A mixed economy is that economy in which both public and private institutions exercise economic control. The features of mixed economy are coexistence of private and public sectors, coexistence of price system and economic planning, price control and rationing of consumer goods, greater social welfare and focus on reducing inequalities. The merits of mixed economy are proper allocation of resources, possibility of avoiding business cycles, suitable to growth requirements of less developed countries, social interest and welfare, good compromise between capitalism and socialism, balanced growth and flexible system. The demerits of mixed economy are instability, uncoordinated system, economic fluctuations, uncertainty and loss of efficiency.
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___________ talked about communist economic system in his book.Marks:1
Karl Marx talked about the communist economic system in his book ‘Das Capital’. Soviet Russia was the first country in the world to establish a communist economy based on Marxian principles.
Consider the following statements and identify the wrong one.
Under capitalist economy production is carried on small scale and under government control.
Under a capitalist economy, production is carried on a large scale. Hence, low-cost goods are available to consumers. The goods are also of standard quality because there is competition.
___________ is a characteristic of capitalist economy.Marks:1
Freedom of enterprise
Freedom of enterprise and contract is a characteristic of a Capitalist economy. It implies that every individual has the freedom to initiate a business or occupation of his choice according to his ability and skills in a capitalistic economy.
___________ economy is also known as free economy and laissez-faire economy .Marks:1
A capitalistic economy is also known as a free economy in the sense it is based on a free economy and a laissez-faire economy in the sense that there is a complete non-interference by government in the economy.
Identify the correct definition of economy.Marks:1
An economy is a system of production and exchange of goods and services.
An economy is a system of production and exchange of goods and services. It performs two main functions:
(a) It produces goods and services to satisfy human wants.
(b) It provides employment or income-earning opportunities to people.