This presentation has a quick overview about different types of economies

2. • Production possibility frontier
• What is mixed economy?
• What is central economy?
• What is positive and normative
economics?

3. • A graph showing all the possible
outputs of two goods when using
the resources available with 100%
efficiency
• It assumes that:
Full employment Fixed technology
Fixed resources Two goods

4. E.g. Guns Vs. Bread production

6. Capitalism Socialism
Mixed
Economy
Market
Economy
Planned
Economy
Mixed
Economy
Demand & Supply Centralised authority
(Fluctuating prices) (Fixed prices)

7. • Most ME are called market economy with
strong regulatory supervision
• ME does not block private sector from profit
seeking but do monitor profit levels and
nationalise companies that are deemed to go
against public good.
• In ME, Governments may seek redistribution
of wealth by taxing the private sector and use
those taxes for social objectives
• Unlike capitalism and socialism, ME allows
some prices to fluctuate according to
demand, while others fixed( Eg. Energy)

8. Heavy industries &
Strategic sectors
“Government”
Banking
Transport
Energy
Other
“Private sector”
Agriculture
Consumer goods
Other industries

9. •Combining advantages of socialism
and capitalism and overcoming
their disadvantages
•Proper allocation of resources
•Protecting the economy
•Free Enterprise (i.e. Economic
development)
•Benefits of taxes for social
programs

10. • Conflict between private and
public sector
• Poor performance of public sector
• Over regulations can paralyze the
production process
• It does not attain very high
economic growth rate

12. • What to produce and how much?
– Resources are scarce and wants are abundant
• What is relative scarcity and relative abundance?
– Normatively, decisions should be driven by what
provides most satisfaction
• What actually drives ‘producer’ decisions in an economy?
• How to produce?
– Resource allocation that minimizes resource input
– Production technique (labor or capital intensive)
• For whom to produce?
– Distribution of goods > purchasing power > income
levels of factors of production
– Income > rent, wages, interest and profits

13. • Ownership of means of production
– Controlled – Land, manmade and natural resources
are owned by the State
• Motive
– Social welfare guides production of goods
• Solution to central problems
– Economic planning (done centrally by the
government) will solve the key economic problems
• Freedom
– Loss of consumer sovereignty
– Loss of choice of occupation

14. • Positive economic analysis deals
with things as they are-”actuals”.
• It studies cause and effect
relationship.
• It remains strictly neutral.
• Regards ends and does not make
value judgments.

15. Few examples of positive economic
analysis are:
• A rise in the price of wine
leads to a fall in its quantity
demanded.
• A rise in the price of
television leads to a decrease
in the quantity of television
supplied.
• An increase in rate of interest
discourages the demand for
loans.

16. • Normative economic analysis deals
with things as they ought to be i.e.,
ideals.
• It passes moral judgments.
• It is not neutral about ends.
• It expresses its opinion about the
rightness or wrongness of an
economic action.

17. Few examples of normative economic
analysis are:
• A rise in the price of food grains
will hit the poor very badly.
• The fair rate of interest is 6%.
• Standard wage rate should be Rs
150 per day per person.

18. Thus, to conclude :
• Positive economics is objective and
fact based while normative economics
is subjective and value based.
• Positive economic statements do not
have to be correct, but they must be
able to be tested and proved or
disproved.
• Normative economic statements are
opinion based, so they cannot be
proved or disproved.

19. Thank you =)