If you unfold the meaning of the word “economy”, it actually came from the combination of two Greek words, ‘oikos’ which means household and ‘nemein’ which stands for manage. In simple words, economy elucidates the state of a country with reference to its production, distribution and trade as well as consumption of goods. We can classify economies as per various parameters as a developed economy would be where per-capita income, as well as the standard of living, is robust. While developing and under-developing countries have low per-capita incomes and people hardly make ends meet. In this blog, we will walk you through the different types of economies with relevant examples.
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What is the Economy?
The economy is the system of producing, distributing, and consuming products and services in a specific country or region. It is the method by which individuals and corporations engage in order to trade and exchange products and services. The economy can be regarded from two perspectives: macroeconomics, which focuses on the overall performance of the economy, and microeconomics, which focuses on individual behaviour and decision-making in the economy.
Understanding the Different Types of Economy in India & World
In a country like India, the Economy is generated from various sources due to the vast landscape and humungous population. The agricultural economy, industrial economy, and substance economy predominantly contribute to the economic growth of the country. Glance through the types of economy mentioned in below-given information. The main types of economy are;
- Socialist Economy
- Capitalist Economy
- Under-developed and Developed Economies
- Free-enterprise Economy
- Planned Economy
- Mixed Economy
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You must have come across this popular political term while reading about the cold war that took place between Russia (USSR) and the USA (which is now a capitalist economy). USSR always followed a socialist economy and then China also took the same route. As the name suggests, Socialist is a type of economy where all the entities and means of production through farms, and factories are socialised and quintessentially belong to the State.
In a socialist economy, there is no concept of privatization but it actually consists of public sector enterprises. In this type of economy, all the means of production are owned and controlled by the state which is in return used for the welfare of the people. Healthcare, as well as education, is also managed by the state. The former Soviet Union is a perfect example of a socialist system and Cuba also corresponds to this type of economy.
With the advancement of technology and scientific innovation, privatization has gained a massive boom. If we talk about the modern Indian economy, the LPG [Liberalisation, Privatisation & Globalization] model is widely acclaimed where private-based entities are being given the utmost importance to strengthen the economy of the country. In this type of economy, the private sector plays a dominant role in controlling the economy. With the fall of the USSR, all the countries have adopted this type of economy. Countries like USA, U.K, and Western Europe are some of the prevailing economies in the world. Hong Kong, India, Singapore, New Zealand, and UAE are some of the well-known capitalist economies as well.
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Under-developed and Developed Economies
In this type of economy, people are generally poor and their productivity is low. As far as the Indian Planning Commission is concerned, it is defined as an underdeveloped country as one “which is characterized by co-existence, in greater or less degree, of unutilized or under-utilized man-power, on the other hand, and of unexploited natural resources on the other.” in this type of economy, agriculture is the main source of income and rapid increase of population, under-utilization of natural resources, low per capita income, low standard of living, uneconomic social structure, under-developed infrastructure etc. While in developed economies the standard of living is robust and there is a higher capital formation.
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This economic system is also known as the unplanned economy where independent entrepreneurs are allowed to take major decisions pertaining to the economy. In this type of economy, there is no central authority which could coordinate, guide as well as direct economic activities. There is a complete economic democracy in a free-enterprise economy. An entrepreneur can take their business to the next level and turn it into a profitable one. Talking about the prevalent economic freedom in this type of economy, there is no control or restraints. The United States of America, as well as Singapore, are the best example of countries that follow the free-enterprise economy model.
In this type of economy, a centrally planned authority plays a decisive role, no matter whether the economy is capitalist or socialist. It is the centrally planned authority that takes utmost control of all the economic activities and core decisions as well as the allocation of resources. In this type of economy, there are generally comprehensive strategies pertaining to investment as well as production in all the sectors of economic activities. Be it agriculture, transport, communications, industrial units, educational sectors as well as public health services, central economy authorities play a prime role. Communist, as well as socialist systems, are the prime examples of planned economies.
This type of economy is a combination of private and state enterprises. This type of economy is when both the features of socialism and capitalism are combined together. Most importantly, it secures private property but then also allows economic freedom to a certain extent in the use of capital while permitting the government to run interference in economic practice to fulfil social objectives. When put in comparison to other types of economy, it has been said by many neo-classical theories that mixed economies are observed to be less efficient as compared to free-enterprise. This is because government regulations are always there in this system but then free markets run without any intervention which can be deemed quite improbable in practical application.
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There are three sorts of economies: free markets, command economies, and mixed economies.
Each economy operates under its own set of variables and assumptions. Traditional economies, command economies, mixed economies, and market economies are the four major types of economic systems.
Microeconomics and macroeconomics are the two branches of economics. Economics is concerned with the efficiency of production and exchange.
Thus, this blog brought a diverse set of the different types of economies you must know about. If you are planning to study a degree in Economics, sign up for an e-meeting with our experts at Leverage Edu and we will help you find the best course and university that fits your preferences and interests and equips you with the necessary knowledge and skills to make a rewarding career in this field!