TYPES OF ECONOMY :
There can be various parameters for
classification of an economy .More prominently an Economy can be classified
upon the following parameters:
- How economy is interacting
with the global economy.
- How demand and supply defines mode of economy.
Closed Economy :
- These Economies neither export goods and services from foreign countries nor it import goods and services from the foreign countries.
- It does not borrow money from abroad nor it lends to other countries.
- Neither residents of a closed economy don’t go for other countries to work nor foreigners are not allowed to work in a closed economy.
- These Economies export goods and services from foreign countries and imports goods and services from the foreign countries as well.
- It borrows money from abroad as well as it lends to other countries.
- Residents of an open economy go for other countries to work and Foreigners are allowed to work in an open economy
Other classification can be based on
demands and supply within an economy, parameters on this basis to classify the
economy are:
- What goods and services should be produced in the country?
- How should the goods and services be produced? Whether
methods of production should be labour intensive or capital intensive.
- How should these produced goods and services be distributed
among people?
Traditional Economy:
- A traditional economy is an original and primitive economic system.
- The traditions, customs, and belief system of the economy define the nature of the goods and the services to be produced in an economy, as well as the rules and manner of their distribution.
- Example: Tribal Communities.
CAPITALIST ECONOMY:
- The purchasing power /desire /demand /wants rather than the basic needs of the people decides what goods are to be produced and distributed among people .
- As the control is in the hands of industrialist ,then methods of production will always be selected in the manner in which it is more and more profitable to the businessmen.
- The produced goods and services are distributed as per the demand /purchasing power of the people.
- Most of the countries in today’s world are moving towards Capitalist mode of Economies.
- Ex. Cheaper housing for the poor is the basic need of the masses but this demand don’t create demand in the market sense because the poor do not have the purchasing power to support the demand.
SOCIALIST ECONOMY:
- In a socialist society , the government which decides what goods are to be produced.
- The decision is in accordance with the needs rather than the demands of the society.
- It is assumed that the government knows what is good for the people of the country and so it takes care of the needs of the people and the desires of individual consumers are not given much importance.
- Ideally, a socialist society has no private property since everything is owned by the state.
- The methods used for production are labour intensive creating more and more of the jobs.
- In principle, distribution under socialism is supposed to be based on what people need and not on what they can afford to purchase.
- Example: The then USSR and China of 1990,s and Cuba.
MIXED ECONOMY:
- In the mixed Economy, both the government and the market together answer the three questions of what to produce, how to produce and how to distribute what is produced.
- In a mixed economy, the market will provide whatever goods and services it can produce well and it is concerned about the demand /desires/purchasing power of the society.
- On the other hand, the government will provide essential goods and services which the market fails to do.
- India is the classic case of mixed Economy.
Anarcho Capitalism :
- A radical concept of Political state which advocates for demolition of state and talks of police and legal services to be provided by the private sector .
- Javier Milei ,the rpesident of Argentina is of this ideology and considered to be the ultra right.
INFORMAL ECONOMY:
- The informal sector, informal economy, or grey economy is the part of an economy that is not part of the formal system ie it is neither taxed, nor accounted in government records.
- Unlike the formal economy, activities of the informal economy are not included in Gross Domestic Product (GDP).
- Ex. any nearby shop from which you make purchases without any bill.
FORMAL ECONOMY:
- All the activities of an economy which pay taxes to the government and are accounted in the government records.
- This economy constitutes a part of Gross Domestic Product (GDP).
- Example: All the purchases from any mall in which you receive the bill.
