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The Meaning of Economy

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Meaning of Economy……..


The economy is a framework where all economic activities are carried out. This is a framework of investment, production, and consumption.


According to A.J.Brown "An Economy is a system by which people get living".




Types of Economy…..



The economic system can be divided into three types…..


i) Capitalist Economy.


ii) Socialist Economy.


iii) Mixed Economy.

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i) Capitalist Economy---

This Economy is the oldest form of economy.


A capitalist economic system based on the doctrine of 'laissez fair'.


Advocated minimum government intervention in economic activities.


Prices are determined by the forces of demand and supply.



Characteristics…..


In this system, individuals have the right to own property and use it for the benefit of their own families.


The government does not coordinate. Business firms are free to acquire resources. The government does not impose restrictions on the entire or a particular industry.


Consumers have the freedom to spend their income on goods and services. In this system, production is guided by consumer choices.


In this economic system markets and prices are important.


The capitalist economy involves only profit motives.


It contains competition between different companies.




Advantages….


Increase in productivity.


Increase efficiency.


Increased wealth generation.




Disadvantages…..


Inequalities in income and wealth lead to monopoly.


Mechanization and automation lead to unemployment.





ii) Socialist Economy---

This economic system is known as State Economy.


All decisions are taken by the Government or State only which is related to production, supply, prices, etc.


A Socialist economy is called a centralized or centrally planned economy.


All productive resources are owned and controlled by the government.




Characteristics…..


Owned by the government. The individuals are not allowed to own any production and accumulate wealth.


The objective of this system is the maximization of social welfare.


Central authority or Government planned to production, supply, consumption, and investments.


In this economic system, there is no competition among classes.




Advantages….


Economic stability.


Absence of monopoly.


Maximization of social welfare.




Disadvantages……


Bureaucratic expansion.


No freedom of occupation.




iii) Mixed Economy-----

A mixed economy system is the combination of capitalism and a socialist economic system.


The public and private sectors co-exist in a mixed economy.


The government intervenes to regulate private enterprises in several ways.




Characteristics……


Co-exist of the public and private sector. The private sector consists of production is owned privately basis of the profit motive and the public sector consists of production are owned by the government motive of social welfare.


Individuals are free to choose any occupation and consume their choice.


The government prepares long-term economic planning. In public sectors, government production targets and plans are formulated directly and in the private sector, this planning provided encouragement, incentives, support, and subsidies.




Advantages……


Government chooses what to produce and consume.


Less income inequality, monopoly may be existing.


Disadvantages……


Less efficient than the private sector.


Excessive control over business activity can add costs.

© 2022 Debashis Baruah

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