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Q1. Define Capitalism, Socialism, and Mixed Economic?

Capitalism:-
According to Loucks definition of economic system is that it consist of those institutions
which a given people or nation or group of nations has chosen or accepted as the means through
which resources are utilized for the satisfaction of human wants.
According to Gruchy, It is an evolving pattern or complex of human relations which is
concerned with the disposal of scarce resources for the purchase of satisfying various private and
public needs for goods and services.
To understand meaning of economic systems, it refers to the role or model of distribution
and production which take place in the society. Business is considered as an organized economic
activity. The primary objective of any business is to product and sale goods or services. It exists
to serve people living in the society with differ means. There are some questions which a economic
system must answer:
 What to product and service to provide?
 The organized of both the production and services
 What are the methods to distribute products and services?

There are three types of economics systems namely

1) Capitalism or Private Enterprise Economy


2) Socialism
3) Mixed Economy or Government and Private Sector.

1) Capitalism or Private Enterprise Economy:-


Capitalism is that part of economic systems where productions are owned and
managed by private individuals and institutions. Or it is economic individualism wherein
the individuals are the one to decide what and how much to produced and distributed. They
are at liberty to use any technique of production and produce anything they like. In this
economic system, State is to take care of only internal and external security of the country.
Normally the activities related to Defense, Police, Administration and Courts of Justice are
controlled by the government.
A way of organizing an economy so that the things that are used to make
and transport products (such as land, oil, factories, ships, etc.) are owned by
individual people and companies rather than by the government.

A system under which the ownership of land and wealth is for the most part
in the hands of private individuals

There are two types of capitalism

1. Classical Capitalism - Adam Smith assumed the presence of perfect competition. The
state is more or less non-existent so far as the economic matters are concerned. The State
job was restrained to enforcement of contracts, protection of property, maintain law and
order national frontiers. They were on the opinion the State has no right to interfere in
the country economic activities. In this type the principle of laissez-faire dominated.

2. Monopoly Capitalism - Free market, perfect competition and State’s non-interference in


the economic activities are not existed. Perfect competition is yielded to imperfect
competition. Nowadays market is restricted. Now countries are intervening in the
activities of their economic systems.
Socialism:-
In socialist economic system means of production are owned and managed by the State.
Ownership of means of production is not allowed. In socialism economic activities are carried on
mainly for social gains and personal interest is of less significance. In this economic system the
anti-social activities like smuggling and hoarding find no place. Economic activities are planned
with the motive of social benefit by a central planning authority.
The individuals in socialistic society surrender their economic freedom in exchange of
assurance of freedom from wants by the State. It is the responsibility of the State to provide food,
lodging and clothing besides other requirements, by assigning a suitable job to each one of them.
Economic efficiency under socialism is greater than under capitalism, the means of
production are not left in the market forces rather they are controlled and regulated by the central
planning authority towards chosen end. The central planning authority makes an exhaustive survey
of resources and utilizes them in the most efficient manner.
In a social economy, there is less inequality of income as compared to capitalist
economy because of the absence of private ownership of means of production. In
socialist economic system every one works hard and paid as per his skills & ability.
A socialist economy is also superior to a capitalist economy that is free from business
fluctuation. Generally planned economy co-ordinates the action of various producing units,
prevents discrimination between saving and investment and make full use of available resources.
It is able to control over production and avoid general deflationary trend.
Any of various economic and political theories advocating collective or
governmental ownership and administration of the means of production and distribution
of goods.
A system of society or group living in which there is no private property.
A system or condition of society in which the means of production are owned and
controlled by the state.
Social and economic doctrine that calls for public rather than private ownership or control
of property and natural resources. According to the socialist view, individuals do not live
or work in isolation but live in cooperation with one another.
Mixed Economic:-
An economic system in which both the private enterprise and a degree of state monopoly
(usually in public services, defense, infrastructure, and basic industries) coexist. All
modern economies are mixed where the means of production are shared between the private and
public sectors. Also called dual economy.
Mixed economy refers to the economic system where the economic activities are directed
by both private and the government. In other words, it is the market economy which is regulated
by the government or the state. Mixed economy reflects characteristics of both market and planned
economy. At present, most real world economies are mixed economy.

The government has to pave the way and promote a healthy competition among the
enterprises, which in turn increases the output and investment.

The increase in employment opportunities has to be regulated in such a way that it is


distributed uniformly to increase the welfare of the economy.

The government must attract more foreign investments through a healthy showcase of the
stable economy with emerging industries.
Q2. Identify the basic characteristics of Capitalism, Socialism and Mixed
Economy?

Characteristics of Capitalism-
1. Free Enterprise Economy
Capitalism is also called as free enterprise economy. This is because under capitalist
system, individuals and private firms have the right to own and use property. They have the right
to earn, save and spend incomes also. They are allowed to obtain resources, to organize production
and to sell the products in any manner they like and to anyone.

2. Private Ownership
Under capitalist economy, the factors of production like labor, land, capital and
organization are privately owned. Private property is protected, controlled and enforced by law.
Individuals have the right to own property and also free to use it as they like.

3. Freedom to Choose Occupation


In a capitalist economy, a person is free to select any occupation. This freedom of choice
enables the individuals to enter the field in which they have knowledge and purchase the property,
which yields maximum profit. This type of freedom enables the businessmen to earn profit from
their business. More resources flow into those areas where yield is more.

4. Market Mechanism
The market mechanism is the most important characteristic feature of capitalist economy.
It is also called as price mechanism. Under capitalist economy, profit, which is related with market
mechanism, guides the allocation of resources. Under this system the whole economic system
moves in and around the market mechanism. This system suffers from lack of proper planning for
distribution of economic resources and co-ordination between production and consumption. Price
mechanism determines the level of consumption, production and distribution. It is acting as the
regulating mechanism in capitalist society.
5. Consumers’ Sovereignty
Under capitalist economy. Consumers have complete freedom to choose what to purchase.
Consumer is the king of the market under capitalism. Manufacturers consider consumers’ demand,
taste, preference etc. while producing goods.

6. Freedom to Save and Spend


Under capitalism, it is also the feature that consumer has liberty to dispose of his personal
income in any way he likes. At a particular time, he may spend even more than what he earns. He
may save his income and can give loan to anyone.

7. Competition among Sellers


Competition among sellers is another feature of capitalist system. The competition among
producers makes them to make best use of factors of production and produce goods at minimum
cost. They try to excel others. Therefore, in a free market economy competition is considered as
an essential feature to protect the consumers, and to maintain a flexible price system.

8. Freedom to enter into Contracts


Under capitalist economy, people are free to enter into contracts. Every person is free to
sell his goods or render services to any one he likes.

9. Inheritance
The right to give or acquire property in inheritance is allowed in capitalism.

10. No Central Plan


Under the capitalist economy there is no central plan to guide and control the activities of
various business concerns. It is the market forces, which influence the resource allocation,
investment decisions etc. and not the Government under the capitalist economy.
Characteristics of Socialism-
1. Public Ownership
It has the public ownership of all the means of production and distribution. This is also
known as collective ownership whereby all means are owned, controlled and regulated by the
state. In socialist economic system the basic motive of government is not profit but to get
targeted objectives.
2. Planned Economy
State is responsible to plan all the economic activities like production, exchange,
distribution and consumption which have great importance in socialism. Since the laws to
demand and supply do not operate in this system, the country is more likely to incur speedy
economic growth and since the state is solely responsible for the distribution of wealth, the
society as a whole prospers.

3. Classless Society
In a capitalist economic system there are different living standards like upper, middle and
lower class. Structure of capitalist society is determined through financial and economic position
of members. However in a true socialist society everyone is equal as far as economic status is
concerned.

4. State is Responsible for Basic Necessities of Life


Mainly there are six basic needs in life and such needs are promised by central authority
i.e state. Those needs are food, shelter, clothing, health, education and employment. In this
economic system stated needs will be provided without any discrimination.

5. Socialism Provides Equal Opportunity


Although there may not be a complete guarantee of income equality, socialism
guarantees to provide equal opportunity. Every potential individual will take into account as per
the skills, talent and ability which will determine their success. Thus, their economic rights are
automatically protected by their duties and no one is deprived of their basic needs.
6. Non-existence of Competition and Limited Choice of Consumer Products
Under the socialist economic system there is absence of competition in the market. The
state has full control over production of goods and services. Moreover since this system focuses
on necessities in life, choice in consumer products is limited and only confined to the essentials.

7. Pricing Mechanism
The pricing process does not freely but works under the control and regulation of the
central planning authority. In socialist economy price have vital importance. Two types of prices
prevailing the in this economic system one is market prices and other is accounting prices.
Market prices are for consumer goods, while accounting prices helps managers to take decision
about production of consumer and investment goods and production method.
Characteristics of Mixed Economy-
1. Co-existence of the Private and Public Sectors
Co-existence of the private and public sectors is the outstanding feature of mixed economy.
In mixed economy, both public sector as well as private sector industries will be functioning.
Certain industries will be in the public sector and certain industries in the private sector. Private
individuals and firms own private sector industries. Profit will be the primary motive of private
sector industries. In public sector, industries are owned and managed by the Government. Public
industries will also have profit motive but that too for the promotion of social welfare.

2. Existence of Joint Sector


Joint sector is one where both Government and private individuals establish an
organization jointly by contributing the necessary capital.

3. Regulation of Private Sector


Under mixed economy, Government exercises strict control and regulation over private
sector industries.

4. Planned Economy
The entire economic structure is subject to the planning of the Government. Mixed
economy is a planned economy. The planning commission decides the objectives, targets and
allocation of resources etc.

5. Private Property
Under mixed economy, private firms and individuals have right to own and use property.

6. Provision of Social Security


Under mixed economy, Government takes steps to provide social security.

7. Motive of Business Concerns


The motive of the business concerns is profit but coupled with the objective of social
welfare.

8. Reduction of Inequalities of Income and Wealth


The Government takes steps to reduce inequalities of income and wealth.

9. Complete Economic Freedom


There is complete economic freedom in mixed economy. Hence, the consumer is free to
buy any commodity they like.