BASIC PROBLEMS OF AN ECONOMY All countries, without exceptions, face the problem of scarcity. Their resources (natural productive resources, man-made capital goods, consumer goods, money and time etc.) areI limited and these resources have alternative uses.
The central economic problem How to produce? Central Economic What provisions are to be What to Produce? made for economic growth? Problems For whom to produce?
Econom apitatist ic onomy Sociati onomy Mixed Economy
SOCIALIST ECONOMY The concept of socialist economy was propounded by Karl Marx and Frederic Engels in their work 'The Communist Manifesto' published in 1848 In this economy, the material means of production i.e. factories, capital, mines etc. are owned by the whole community represented by the State All members are entitled to get benefit from the fruits of such socialised planned production on the basis of equal rights. A socialist economy is also called as "Command Economy" or a "Centrally Planned Economy". Here, the resources are allocated according to the commands of a central planning authority and therefore, market forces have no role in the allocation of resources. Under a socialist economy, production and distribution of goods are aimed at maximizing the welfare of the community as a whole.
SOCIALIST ECONOMY Collective Ownership Economic planning Absence of Consumer Choice Relatively Equal Income Distribution Minimum role of Price Mechanism or Market forces Absence of Competition
THE MIXED ECONOMY The mixed economic system depends on both markets and governments for allocation of resources. In fact, every economy in the real world makes-Eh use of both markets and governments and therefore is mixed economy in its nature. In a mixed economy, the aim is to develop a system which tries to include the best features of both the controlled economy and the market economy while excluding the demerits of both. It appreciates the advantages of private enterprise and private property with their emphasis on self-interest and profit motive. Vast economic development"-11 of England, the USA etc. is due to private enterprise. At the same time, it is noticed that private property, profit motive and self-interest of the market economy may not promote the interests of the community as a whole and as such, the Government should remove these defects of private enterprise. For this purpose, the Government itself must rur important and selected industries and eliminate the free play of pro t motive and self-interest. Private enterprise which has its own significante is also allowed to play a positive role in a mixed economy. However, the state imposes necessary measures to control and to regulate the private sector to ensure that they function in accordance with the