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.