24/12/2024
What is an Economy?
An *"Economy"* has been defined as a system that provides living to the people. It undertakes three basic economic activities viz:
1. *Production*: A process of creating goods and services.
2. *Consumption*: It means using up of goods and services to satisfy human wants directly.
3. *Investment or Capital formation(financial activities like exchange and distribution of wealth)*: Addition to the capital stock of an economy that helps in further production.
These activities are performed with the motive of earning income and its spending to satisfy human wants.
It includes the activities of an industrialist, agriculturist, contractor, businessman, an employee as well as services of private institutions and government departments.
*Nature of Economies*:
Broadly economies are classified
as:
1. *Free Market or Capitalistic Economy*:
In this maket, forces (demand and supply) are left free to determine the price and other equilibrium levels.
There is no interference by the government.
All means of production are owned and operated by the private sector, and self interest or profit is the prime consideration behind production of different goods and services.
2. *Centrally Planned, Socialist or Command Economy*:
It refers to an economy in which resources are owned, controlled and operated by the Government or Central Authority.
All decisions are taken with a view to Maximizing Social Welfare.
3. *Mixed Economy*:
It shares the characteristics of both Market Economy and Centrally planned Economy. So
Mixed Economy =Market Eco.+
Centrally Planned Eco.
*Motive of Mixed Economy*:
Self interest+ Social Welfare
