what is meant by an economy? what are its different types.??? ANSWER PLZ....
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An economy is a system whereby goods are produced and exchanged. Without a viable economy, a state will collapse. There are three main types of economies: free market, command, and mixed. The chart below compares free-market and command economies; mixed economies are a combination of the two.
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Answer:
An economy is a system whereby goods are produced and exchanged. Without a viable economy, a state will collapse
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.
II. Command Economy
A command economy is the opposite of a free market economy. In a command economy system, there is one centralized power, which in most cases is the government. So the government makes all decisions regarding the economy. It will decide which goods and services will be produced, in what quantities. The price will also be determined by such centralized power and not by market forces.
A command economy is a characteristic trait of a communist country. Countries like Cuba, China, and the previous USSR are practical examples of this command economy system. Such economies are also known as Planned Economies because the government plans all the forces of the economy, nothing is decided by the free market.
In such a planned economy there cannot be any competition. The government has a monopoly in almost all the businesses and sectors. All businesses follow the regulations and instructions of the government and are not influenced by the forces of the economy.
III. Market Economy
This is the complete opposite of a command economy. A free market economy relies entirely on the free market and free market trends. There is no involvement or interference from the government or any such controlling power. This means there are no rules or regulations imposed on either buyers or sellers. The entire economy is determined by the participants of the economy and the laws of demand and supply.
Theoretically, a free market economy can show very high levels of growth. It makes private organizations (only these exist) very powerful and influential in the country. So it may create an imbalance of wealth and a scenario where the rich get richer and poor get poorer.
IV. Mixed Economy
A mixed economy is a perfect marriage between a command economy and a free market economy. So, by and large, the economy is free of government intervention. But the government will regulate and oversee specific sensitive areas of the economy like transportation, public services, defence etc. Such an economy is known as a dual economy. The best examples of such a mixed economy are India and France.
Such a mixed economy allows private businesses the freedom to operate in the economy with minimum oversight. At the same time, the government can regulate the economy so it does not adversely affect the public interests. Both public sector and private sector can co-exist peacefully in one economy. It is the perfect blend of socialism and capitalism. In fact, most economies of the world are currently considered as mixed economies.