Chapter-4

Types of Economies

Q1) what is developed and underdeveloped Economies.

Sol- Developed country or economy is defined as the country which has a high real per capita income.
For ex USA ,Canada , Australia , Newzealand,japan etc.

Developing or under developed country - on the other hand ,is defined as a country in which real per
capita income is low and which has the potentity of development. For ex india , Bangladesh etc .

Q2) What are features of developing economy ?

Sol- Features of Developing Economy

1) Low per capita income .

2) low standard of living .

3) High population growth .

Q3) What are the features of Developed Economy?

Sol- 1) High per capita income .

2) High standard of living .

3) low level of population growth.

Q4) what is Economic system?

Sol- An economic system is defined as a sum total of all those devices and institutions through which
economic choices are made and scare resources are used for the purpose of satisfying various human
wants.

Q5) What is Capitalistic economy or capitalism ?

Sol- A capitalistic economy is in which productive resources are owned private individuals who use these
resources to earn profits and in which state intervention is minimum so that economic activities are
mostly unplanned and uncoordinated .

Q6) What are features of capitalism ?

Sol- The following are the Features of capitalism-

1) Private property- Private property means that individual owners of the productive forces have the
right to acquire ,process,use and sell property and productive forces .
2) Right of inheritance- The right of inheritance means that the property owned by an individual can be
legally passed to his legal heirs like sons and daughters .This help individuals to save and acculumate
wealth.

3) Freedom of choice for consumers - consumers are free to buy and consume goods and services of
their choices .They are free to spend their income and whatever goods and services they prefer to buy .

4) Price mechanism - in capitalism price mechanism is essence the activities of production and
consumption pattern is determined by the price mechanism.

5) Competition - since many industries are free to entry to exit market at any time so there is existence
of competition among the various industries . Competitive is one of the vital pillars of capitalism.

Q7) Explain the merits of capitalism or capitalistic economy?

Sol- 1) incentive for capital formation - In capitalistic economy ,the desire to earn profits provides
motive for higher investment. Individuals also save and invest which leads to higher income and higher
rate of economic growth.

2) New consumers goods - The capitalistic economy serves the wide range of consumer goods to
individuals due to existence of large number of producers .

3) Spirit of enterprise - Force of profit motive has infused the spirit of enterprise and risk taking in the
individuals. In order to earn profit they compete with each other .

4) Economic freedom - A Capitalistic economy is founded on freedom there is no restrictions by the

government .so capitalist operates the Economic Activities freely .

5) Expansion in international trade - The capitalistic economic system adovacates free trade between
countries ,there is more global economic interaction.

Q8) What are demerits of capitalism (capitalistic Economy).

Sol- 1) Inequalities of income and weath - The major shortcomings of the capitalist economy is that it
has led to large disparities in the distribution of income and wealth.

2) Class struggle - class struggle means clash between Capitalist and workers because in capitalism
profit motive often derive to exploitation of workers which often leads to class struggle.

3) Neglect of social welfare - In the capitalist economy , production is undertaken to maximise ,private
profit . There fore ,the goal of maximization of social welfare is neglected.

Q9) what is Socialism ?

Sol- The socialistic economic system is defined as an economic system in which the means of production
are owned by the entire society and operated by the public authority according to a general economic
plan for the benefit of the entire community.
Q10) What are features of Socialism ?

Sol- 1) Economic planning- This is important feature in the socialism so planning replaces the price
mechanism in a socialist economy .so all important decisions regarding "what to produce" ,"how to
produce" and "for whom to produce" is taken by central authority.

2) Socialistic Ownership of production Resources - All the productive resources such as

land ,mills ,factories ,banks ,trade ,etc are owned by state .

3) No competition - The socialist economic system eliminates competition of all types.since the
government has monopoly of production of all types of goods in a socialist economy,there is no scope of
competition and rivalry among different production units.

Q11) what are merits of Socialism or socialistic Economy?

Sol- 1) Equitable distribution of income -A socialist economy brings about equitable distribution of
income .it provides the equal opportunities to all , irrespective of caste ,colour and creed .

2) No class struggle - A socialist economy has no class struggle since state is employer which is guided
by social welfare motive .The state has no reason has no reason to exploit the workers .

3) Provision of social security - State undertake various social security and various social security
measures with the objective of providing the basic facilities of housing , education, health old age
pensions etc.

Q12) What are demerits of Socialism ?

Sol- 1) loss of incentives - There Is an absense of appropriate incentives in a socialist economy .so there
is absense of incentives whether if they work efficiently .

2) loss of Efficiency - since there is absense of incentives in a socialist economy .so workers don't feel
motivated to work efficiently . Bureaucracy may lead to red Taoism ,delays in decision making ,nepotism
and corruption.

3) loss of freedom - A very serious shortcomings of a socialist economic system is the loss of
freedom.since every thing is controlled by authorities so often consumers do not enjoy choice in real
sense .

Q13) What are the Features of mixed economic system .

Sol- 1) co existence of Public and private sectors - This economic system contains both the public and
private sectors .Public sector usually invest in the interest of entire society and private functions on the
profit making.
2) Economic Planning- An important feature of a mixed economic system is Economic planning .
Economic planning is essential to promote economic development, but it is not dominant and
comprehensive as it is Socialist Economic system.

3) Promotion of social welfare- Promotion of social welfare is very important objective of a mixed
economic system.The government makes efforts to promote the welfare of the entire community.

4) Price mechanism - In the mixed economy ,price mechanism plays an important role but not as
dominant in capitalism ,price mechanism functions on the certain rules and regulations .

5) Profit motive - In mixed economic system , public sector is guided largely by social wlefare motive ,
whereas profit motive is present in the private sector .

Q14) What are the merits of mixed economic system .

Sol- 1) Economic stability - A mixed economic system ensures the Economic stability .It tries to avoid ups
and downs in the economy through planning and regulations.

2) Rapid Economic Development - for Developing countries ,the mixed economic system is
significant since it ensures economic and non economic development.

3) Proper allocation of resources - Economic planning ensures that the Economic resources of the
economy are utilised in the best possible way .since it is divided properly between both public and
private sector.

Q15) What are demerits of mixed Economic system?

1) conflict between the two sectors - A serious shortcomings of the mixed Economic system is that
collision ,bitterness and non cooperation may take place between the private and public sectors .

2) Excessive regulations - A mixed economy is likely to give rise to a sytem of excessive controls and
regulations. A Government may impose the Excessive controls like the licensing sytem and monetary
and fiscal regulations.

3) Inefficient operation- In mixed Economic stucture there are possible chances public sectors not
working efficiently as private sectors due to lack of initiative and responsibility on the part of
bureaucrats.