The economy of a country is very important. Everything that is produced, imported, and exported has an impact on the economy. This affects even services like banking, tourism, and so on. Through steady recording, we can determine if the economy of a country is doing well or not. If the export is greater than the import and there is profit then the economy is doing well. If the situation is otherwise then the economy is not doing well. So what are the types of economy?
Types of economy
There are majorly three types of economy. They are capitalist economy, socialist economy, and mixed economy.
This is also called the free market economy. In this type of economic system, the factors of production are in the hands of private individuals. This means that they take more control of production than the government. Examples of countries that practice this system are America, Japan, France, and so on.
Features of the capitalist economy
- Private individuals own properties
- There is competition among business owners and companies.
- The sole purpose of this type of economy is to make maximum profit.
- There is the quality of the product for consumer satisfaction against quantity.
- Individuals can freely choose the type of business to run.
This is also called a controlled economy. In this type of economic system, the factors of production are in the hands of the government. That means that private individuals can not own their businesses. They can only be delegated by the government. Examples of countries that practice this system are China, Ethiopia, Burkina Faso, and so on.
Features of a socialist economy
- The country owns the means of production
- There is no competition since there is only one producer, the state
- There is equitable distribution of goods and services to the citizens.
- Their main aim is not to make a profit but to provide goods and services to them
- Not all goods and services are sold to the citizens. Some of them are free.
This type of economic system is a combination of both capitalist and socialist economies. This means that both individuals and the government can control the factors of production for the production of goods and services. India is a country that practices a mixed economic system.
Features of mixed economy
- There is freedom of choice from many options
- Equitable distribution of goods and services
- There is fair competition between the private and public sector
- The government provides what private businesses can not give. For example, railway, power supply, and so on.
The black economy is the illegal sector of a country’s economy that is not taxed by the government. The black market earnings, sales, and production are not recorded in the country’s economic books. The black market is not concerned with the general economy. Since it is untaxed it does not follow any economic policies given by the government like minimum wage, tax procedure, price control, and so on.
A business or its transactions can be considered as the black market if it does any of these things:
- Selling of illegal products or goods: selling of illegal, prohibited, or banned products such as weapons, human parts or human beings, hard drugs, and banned items makes a black market business.
- Non-remittance of sales tax: every business is charged sales tax by the government of a country. If these taxes are not paid at all or. not accurately paid the business is regarded as a black market.
Black economy in India
In India, there are a lot of black markets. It began as early as 1956 with little businesses. By not disclosing their true earnings they evaded sales tax or paid only a bit. Other large businesses and companies realized this and also tried to do the same by aiding political candidates and interfering in politics to get away with not paying sales tax. The black economy in India generates more than 60% revenue. This is very high. It contributes more than the top sectors in the economy of India.
What are the effects of black money on our economy?
There are several effects of black money on the Indian economy. They are all negative:
- It increases the level of inflation of goods and services. It will adversely affect the poor.
- It increases the amount of tax. Since there should be a particular amount that the tax adds to the total revenue of a country, it is increased so that it can be met.
- It reduces the level of development of a country. The revenue required for certain developmental projects is not available.
- It makes it difficult to ascertain the GDP of a country. GDP stands for gross domestic product and is the total monetary value of goods and services.
- It reduces the PCI (Per Capita income) of a country. PCI is the assumed amount that each individual earns or is capable of earning. It is obtained by dividing the GDP by the total population.
- It leads to a balanced deficit in the economy.
The black economy is an illegal type of business or transaction. They have negative effects on the economy. It increases inflation, slows down development, and leads to a balance deficit.