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Three types of economic systems exist, each with their own drawbacks and benefits; the Market Economy, the Planned Economy and the Mixed Economy.An economic system is loosely defined as country¶s plan for its services, goods produced, and the exact way in which its economic plan is carried out. In general, there are three major types of economic systems prevailing around the world.
In a free market economy, the µinvisible hand¶ of supply-and-demand market forces defines what is produced, in what quantity, and at what price. Since free markets are governed by the law of supply and demand, the market itself will determine the price of goods and services, and this information will be made available to all participants. Businesses can decide which goods to produce and in what quantity, and consumers and businesses can decide what they want to purchase and at what price. In a market economy, national and state governments play a minor role. Instead, consumers and their buying decisions drive the economy. In this type of economic system, the assumptions of the market play a major role in deciding the right path for a country¶s economic development. Market economies aim to reduce or eliminate entirely subsidies for a particular industry, the pre-determination of prices for different commodities, and the amount of regulation controlling different industrial sectors.
The absence of central planning is one of the major features of this economic system. Market decisions are mainly dominated by supply and demand. The role of the government in a market economy is to simply make sure that the market is stable enough to carry out its economic activity properly«.. The main characteristics of a market economy are its flexibility and decentralized nature. This type of economic system is more apt to cope up with ever-changing market trends, making it faster and more reactive.
and because of this. A planned economy is also sometimes called a command economy. On the other hand. although it has been found that government interventions are sometimes necessary. The most important aspect of this type of economy is that all major decisions related to the production. in what quantity. In these cases. commodity and service prices. and market forces have very little say in such an economy. and to be sold at what price. where the government decides what to produce. are all made by the government. meaning that the government will have some role in regulating the market. the government mainly deals with the formation and implementation of rules and regulations and ensures that monopolistic behavior does not obstruct competition in the marketplace. distribution. but all other activity will be driven by the decisions of buyers and sellers. The planned economy is government directed. Planned Economy The opposite of a market economy is a planned economy. This type of economy lacks the kind of flexibility that is present a market economy. Mixed economies Mixed economies blend market and planned economies. the planned economy reacts slower to changes in consumer needs and fluctuating patterns of supply and demand. Mixed . a planned economy aims at using all available resources for developing production instead of allotting the resources for advertising or marketing.The role of the national and state governments in the market economy is debatable.
The was one of the best examples of the Capitalist economy is considered as a mixed type today. . A mixed economy combines elements of both the planned and the market economies in one cohesive system. This system prevails in many countries where neither the government nor the business entities control the economic activities of that country . But as the experiences tell the role of the Government has increased very fast after the worldwide depression. Mixed economies include both capitalist and socialist economic policies and often arise in societies that seek to balance a wide range of political and economic views. or mixed.both sectors play an important role in the economic decisionmaking of the country. In a mixed economy there is flexibility in some areas and government control in others. socialist.Economy can be defined as a form of organization where the elements of both capitalist economy and socialist economy are found. distribution and other types of economic activities. Existence Of A Mixed Economy It is too difficult to define a country's economy as capitalist. Mixed Economy An Economic Mixture In a mixed type economy. both the private ownership as well as the state takes part in the means of production. This means that certain features from both market and planned economic systems are taken to form this type of economy.
The mixed economy allows private participation in the field of production in an environment of competition with an objective of attaining profit. . High freedom for choice to the consumers. the means of production and distribution are made by the public authority or the Government. where the means of production are privately owned. Free environment to compete in the economy. Here in such form of economy there is no Government interference. On the contrary following to the socialism features it includes public ownership in production for maximizing social welfare Simply in such type of economy there is the presence of private economic freedom with centralized planning with a common goal of avoiding the problems associated with both capitalism as well as socialism Capitalist Economy A capitalist economy otherwise called as the free market economy can be defined as an economic activity. The basic characteristics of such types of economic system are as follows: y y y y y More private participation in the field of economic activities. Individuals and firms act for profit motive. Government acts as a police state Socialist Economy In case of a socialist economy. Most of the economies over the world have enriched their economic system by implementing capitalist norm in the recent years.
contrasting sharply with the sagging infrastructure of New Delhi and Mumbai. Objective is to attain social gain. making India's fractured political system appear sluggish and chaotic. India doesn't appear to be facing the same degree of potential dangers and downside risks as China. far short of the 8.7% that China announced in mid-January ± India's economy looks to be rebounding from the downturn in better shape than China's. Beijing's shiny new airport and wide freeways are models of modern development.The basic characteristics of such types of economic system are as follows: y y y y It's a centrally planned economy. The Chinese economy historically outpaces India's by just about every measure. India may finally have one up on its high-octane rival. China's fast-acting government implements new policies with blinding speed. Even China had adopted a socialist model after the communist victory in the civil war. India had also adopted the socialist pattern of economy after getting independence for fostering its economic growth rate. which means policymakers in New Delhi might have a much easier task in maintaining the economy's momentum than their Chinese counterparts. And as the global economy emerges from the Great Recession. still the five-year plans in the country holds its relative importance. Though the country has opened its doors of the market. China: Whose Economy Is Better? In the inevitable comparisons that economists and businesspeople make between Asia's two rising giants. however. which were so effective in restarting economic growth that they helped lift the entire Asian region out of the downturn. India vs. Now.4% in 2009. The USSR and some of the European countries have adopted a fully centralized planned economy. India once again seems to be playing second fiddle. In the past most of the countries over the world hade relied upon these form of economic pattern. Absence of consumer's sovereignty y y y y Socialist Norms Over The World Though a large numbers of nations over the world are in a trend of following the free market system. Though India still can't compete on top-line economic growth ² the World Bank projects India's gross domestic product (GDP) will increase 6. China nearly always comes out on top. still the socialist pattern keeps up its dominance. Pundits around the world laud China's leadership for its well-devised economic policies during the crisis. It aims at achieving a better distribution of income and wealth. "The way I see it is that the growth in India is much more . China and India.
The amount of new loans made in 2009 nearly doubled from the year before to $1. A January report by economic-research outfit Centennial Asia Advisors noted that based on available data.sustainable" than the growth in China. says Jim Walker. China's exports represented 35% of GDP compared with only 24% for India in 2008. According to government data. holding up growth even as China's exports dropped 16% in 2009. does have the reassuring factor that the [risks of] asset price bubbles are less. while China's government . Thus India was afforded more protection from the worst effects of the financial crisis in the West. for example. "India's growth. for example. or roughly 8% of GDP. India. As a result. they have introduced a series of steps to cool down the housing market and restrict access to credit by. the total amount of NPLs from China's stimulus program would reach $400 billion. In fact. was actually lower in 2009 than in 2008. an economist at Hong Kong± based research firm Asianomics. economists see continued strength in India's banks. China implemented what Walker calls "the biggest stimulus program in global history. or only 3% of GDP. "there was no sign that domestic banks' nonperforming assets were deteriorating materially.4 trillion ± representing almost 30% of GDP." says Rajat Nag. Since December.8% in December from a year earlier ² the fastest increase in 18 months. $585 billion package is roughly twice as large. UBS economist Wang Tao calculates that if 20% of all new lending in 2009 and 10% of the amount in 2010 goes bad over the next three to five years. Growth of credit. especially compared with Chinese lenders. Goldman Sachs estimates that India's government stimulus will total $36 billion this fiscal year. Many economists expect the large surge in credit to lead to a growing number of nonperforming loans (NPLs). though less stellar. India maintained robust growth without Beijing's hefty stimulus in part because it is less exposed to the international economy. The government used the same tools as every other to support growth when the financial crisis hit ± cutting interest rates. By comparison. offering tax breaks and increasing fiscal spending ± but the scale was smaller than in China. But now China is facing the consequences of its largesse. India's edge is due to the different stimulus programs adopted by the two countries to support growth during the downturn. managing director general of the Asian Development Bank in Manila. reintroducing taxes on certain property transactions and raising the required level of cash that banks have to keep on hand in an effort to reduce new lending." Nor do analysts harbor the same concerns that India's monetary policies are sending prices of Indian real estate to bubble levels. Beijing most significantly counted on massive credit growth to spur the economy. In a November report. she still calls the sum "staggering. The stimulus plan worked wonders. Most important. India managed to achieve its substantial growth without putting its banking sector at risk. average real estate prices in Chinese cities jumped 7. Fears are rising that Beijing's easy-money policies have fueled a potential property-price bubble. isn't experiencing nearly the same degree of fallout from its recession-fighting methods." On top of government outlays for new infrastructure and tax breaks. meanwhile. at about 6% of GDP per year. India's banks have remained quite conservative through the downturn. Though Wang notes that the total is small compared with the level of NPLs that Chinese banks carried in the past." Policymakers in Beijing are clearly concerned. China's two-year. The credit boom has also sparked worries about the nation's banking system.
India's domestic economy provides greater cushion from external shocks than China's. has said that "slow and steady will win the race. India's confident consumer didn't let the economy down. The Indian economy is not immune to risks. Passenger car sales in India in December jumped 40% from a year earlier. Private domestic consumption accounts for 57% of GDP in India compared with only 35% in China." The Great Recession appears to have proved him right.S. Monopolies may be existing but under close supervision of the government. a mixed economy may have less income inequality due to the role played by the government. More significantly. Social cost of business activities is reduced by carrying out cost-benefit analysis by the government.needed to be much more active to replace lost exports to the U. The World Bank forecasts India's economy will surge 7. Producers and consumer have sovereignty to choose what to produce and what to consume and production and consumption of harmful goods and services may be stopped by the government. But rapid growth is expected to continue. .6% in 2010 and 8% in 2011. "What we see [in India] is a fundamental domestic demand story that doesn't stall in the time of a global downturn. As compared to Market economy. Indian Prime Minister Manmohan Singh. when speaking about his country's more plodding pace of economic policymaking. The government has to contend with a yawning budget deficit. Government will play an active role in the economy along with the freedom of privatization to companies. and last year's weak monsoon rains will likely undercut agricultural production and soften rural consumer spending. not far behind the 9% rate it predicts for China for each of those years. Mixed economy will suit india best as it controls excessive privatization and has government control too." says Asianomics' Walker. though.Thus mixed economy is the best economy due to the liberties offered by the government and also because of the slight control exercised by them.