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Economic systems
1.
2. What is an economy?
An economy or economic system, is
the way a nation makes economic
choices about how the nation will use
its resources to produce and distribute
goods and services in a society.
3. Choices
Everyday ,in our country and countries
around the world, business owners,
consumers, workers, and governments
must make choices about using scarce
resources.
Together these choices create an economy.
These choices fall into three groups:
4. Basic economic choices:
What goods and services should be
produced?
How should the goods and services be
produced?
Who receives and consumes these goods
and services.
5. Three types of economic systems:
These questions are answered by the type of
economic system a nation has. There are
three types of economies:
1. Capitalist economy
2. Socialist economy
3. Mixed economy
6. Capitalist economy(free market
economy)
Capitalist economy is one in which factors of
production are privately owned and managed and in
which production takes place on the initiative for
earning profits.
It is a free economy in which government interference
is not found.
In this the consumers decide what should be
produced, business determine how the products will
be produced.
Ex. The united states, Japan, Western Europe
7. Features of free market economy
A. Economic freedom: individuals have the right to
choose.
B. Competition: more than one producer of
good/services insures choices.
C. Private property: individuals have the right to own
their own property, including business.
D. Profit motive: individuals are driven by a desire to
profit(make money)
E. Freedom to enterprise: everybody is free to engage
in whatever economic activity he pleases.
8. Socialist economy (controlled economy)
All material means of production i.e. land, capital
and mines etc. are owned by the whole community
represented by the state.
The state decides the size and direction of the
investment.
The state works for the welfare of the society and
profit motive is not important for it.
Ex. Communist countries (China, North korea,
Cuba)
9. Features of socialist economy:
Collective ownership of means of production: In
this economy, all the production are state owned.
Centrally planned economy: All basic decisions
pertaining to what, how and for whom are decided by
the centrally planned authority.
Economic equalities: a socialist state strives to
achieve economic equality.
Lack of competition: it avoid all sorts of competition
and rivalry as between different production units.
10. Mixed economy
An economic system, which contains of both
private and public sectors, is called mixed
economy.
It permits coexistence of controlled and market
economy.
The concept of mixed economy was given by
J.M.Keynes.
Ex. India
11. Features of mixed economy:
Coexistence of both private and public sector: all
economic decisions are partly taken by state and partly
taken by the private entrepreneurs.
Planned economy: the government has a clear and
definite economic plan.
Balanced regional development: public sector
enterprises may be located in the backward regions so
as to ensure its development.
Dual system of pricing: in private sector price is
decided by the help of price mechanism on the other
hand on govt. sector prices are fixed by the govt.