What is an economy? Name the different types of an economy with their difference.
Answers
Answer:
Types of Economy
I. Traditional Economy
A traditional economy, as the name suggests, is based on a traditional approach. These economies are based on ancient rules and are the most basic type of economy. The focus in a traditional economy is only on the goods and services that match their customs, beliefs, and history.
Such traditional economies tend to focus primarily on agriculture, cattle herding, fishing etc. A traditional economy will use the barter system and has no concept of currency or money. Their economies center around their tribes or families. Such economies believe in only producing what and how much they require. They find no need to produce any market surplus. There is no concept of trading.
If such traditional economy does not adapt it becomes very vulnerable to change in their environment. Once such economies evolve they begin to adopt farming. They even trade their surplus crop and start evolving from this traditional economy. And when a traditional economy interacts with a market or a command economy it becomes a traditional mixed economy.
Then money (currency) starts to take importance in their lives as well. This type of traditional economy is suited to underdevelop and developing economies. Even today such economies can be found in some pockets of Africa and the Middle East.
Explanation:
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Meaning of Economic System
An economic system is a mechanism with the help of which the government’s plan and allocate accessible services, resources, and commodities across the country. Economic systems manage elements of production, combining wealth, labor, physical resources, and business people. An economic system incorporates many companies, agencies, objects, models, as well as for deciding procedures.
Types of Economic System
1) Capitalist Economy- In a capitalist system the products manufactured are divided among people not according to what people want but on the foundation of Purchasing Power—which is the ability to buy products and services. Which means an individual needs to have the money with him to buy the goods and services. The Low-cost housing for the underprivileged is much required but will not include as demand in the market because the needy do not have the buying power to back the demand. Therefore, the commodity will not be manufactured and provided as per market forces.
2)Socialist Economy- This economy system acknowledges the three inquiries in a different way. In a socialist society, the government determines what products are to be manufactured in accordance with the requirements of society. It is believed that the government understands what is appropriate for the citizen of the country, therefore, the passions of individual buyers are not given much attention. The government concludes how products are to be created and how the product should be disposed of. In principle, sharing under socialism is assumed to be based on what an individual need and not what they can buy. A socialist system does not have a separate estate because everything is controlled by the government.
3) Mixed Economic – Mixed systems have characteristics of both the command and market economic systems. For this purpose, the mixed economic systems are also called as dual economic systems. However, there is no sincere method to determine a mixed system, sometimes the word represents a market system beneath the strict administrative control in certain sections of the economy