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Merits and demerits of the Socialist economy: 

Merits:

1. Resources are used in the interest of society rather than the private interest. 

2. There an end to class struggle. 

3. Economic resources are utilised in the best manner. 

4. Economic equality is established. 

5. There is an end to the problems of unemployment and exploitation.

Demerits: 

1. There is dominance of bureaucracy. 

2. Dictatorship of party. 

3. Inefficiency and lack of production. 

4. Lack of economic incentives and motivations. 

5. Red-tapism and nepotism. 

6. Lack of freedom.

Economy is a system of mutual cooperation among different producers. It is with the combined efforts of different producers that the goods and services are produced. For example, a textile mill buys cotton from the farmer, machines from the machine industries and electricity from power-generating plants. Trains, trucks, buses and other means of transportation help in transporting the goods from one place to another. Without their mutual cooperation it is very difficult to manufacture the cloth. Thus mutual cooperation and coordination among different producers build a structure which is known as economy.

The Indian Economy is concerned with the study of economic activities of all the residents in India whereas the economy of a particular state is related with the study of economic activities of the residents of that state only. For example Rajasthan economy is talked in terms of economic activities of the people living in Rajasthan.

The concept of the Socialist Economy was propounded by Karl Marx whose ‘Das Capital’ and ‘Communist Manifesto’ played an important role in the socialist movement.

Three ways of defining an economy are : 

1. Economy is a system of peoples’ livelihood. 

2. It is a system of mutual cooperation among producers. 

3. It is a system of mutual exchange.

(b) Economic activities.

Correct Answer is: (c) Nature.

Meaning of the socialist economy: Socialist economy is a system in which the society as a whole owns all the means of production and all economic decisions are taken by a central authority. In socialism the collective interest is given priority over the private interest in utilising the resources.

Economy is a system of livelihood. When we took into the activities of a country we find that different people are engaged in different types of works as a farmer ploughs’ fields, labour works in a factory, an employee works in office and so on. All these people work to earn their livelihood. An organisation or a system which promotes and organises these activities of livelihood, is known as economy.

The main factors of production are land, labour, capital, management and entrepreneur.

Main characteristics of the capitalist economy are: 

1. Private ownership on property.

2. Economic freedom. 

3. Consumers’ sovereignty. 

4. Perfect competition. 

5. Role of Price-mechanism. 

6. Self Interest and profit motive. 

7. Class struggle.

In the capitalist economy consumer is the king of the market. The producers produce the goods and services according to the tastes and preferences of the consumers.

(d) All of the above.

(a) Individual Freedom.

(b) One of the merits of economy.

Merits and demerits of the capitalist economy: Merits: 

1. Increasing production and efficiency. 

2. Optimum utilization of resources. 

3. Technical evelopment. 

4. Increase in capital formation. 

5. Economic freedom. 

6. Rise in living standard.

Demerits: 

1. Decline of moral values. 

2. Problems of unemployment, poverty, starvation, exploitation, inflation etc. 

3. Increase in regional disparities. 

4. Disparities of income and property, 

5. Unlimited consumption. 

6. Concentration of Economic power.

Three resource of ancient economic thought are: 

1. Vedas 

2. Upanishad 

3. Smiriti

Distribution of income earned by exchange of goods and services among different means is called distribution.

The continuous processes of an economy are: Consumption, production, exchange and distribution.

Happiness of body, mind and soul depends upon four Purusharths-Dharma, Artha, Kama and Moksha which called Chatushtya Purusharth in Indian Philosophy. They are compared with a river where Artha and Kama are flow and Dharma and Moksha are banks.

The four vedas of ancient Indian economic thought as source are: 

1. Rigveda 

2. Yajurveda 

3. Samveda 

4. Atharvaveda

Socialist economy is a economic system in which all means of production are owned by the whole society for social use.

A farmer does farming, in such an act farmer is a producer and farming is production. .

Conversion of a raw material into finished goods which can be utilized to satisfy needs is called production. In other words creation of utility is called production.

It is an act of consuming goods and services directly to satisfy one’s need. The one who utilises the goods and services to satisfy his needs is called the consumer.

Means of production are-Land, Labour, Capital, Entrepreneur.

The type of economy are: 

1. Capitalist Economy 

2. Socialist Economy 

3. Mixed Economy

The main characteristics of mixed economy are:

(a) Co-existence of the private and public sectors: Industries of national importance as basic and heavy industries are set up in the public sector and the consumer goods, industries, cottage industries, agriculture etc. are left to the care of the private sector. Besides there are also the joint and the cooperative sectors.

(b) Social Welfare: Here the private sector works but it does not pose an obstruction in the way of the social welfare.

(c) Controlled Price System: In this system the price mechanism is neither set free nor it is discarded completely. Government keeps an eye on the price mechanism in social interest so as to check inequality and maximise social welfare.

(d) Individual Freedom: No doubt in the mixed economy one is allowed freedom to work and consume but this freedom is restricted in the social interest.

Capitalist Economy: It involves ownership of economic activities, private interest, profit motive. There is no interference of government in economic activities. It is called market economy and open economy. It originated in between 1760-1820. It is not present in its pure form in any country of the world. 

Example: U.S.A, Japan. Germany, England, Italy, France etc. have Capitalist Economy.

Main characteristics of capitalist economy are: 

1. Private ownership on property: In this economy factors of production like land, capital, mines, industries, machines etc. are owned by the private owner. They are free to use them. They have sole right to increase, decrease, keep and use property. 

2. Freedom of choice to consumers: Consumer have sovereignty over economic activities or other words production of goods is done according to purchasing power of the consumers or price mechanism depends upon consumers choice as consumer has top most place in this economic system hence is called the king of the market.

3. Economic freedom to entrepreneur: What to produce? How to produce? In what quantity to be produced is decided by individual. There is no interference of govt, in the policy related to production.

4. Competition: It improves business, skills as there is the competition among salers and purchasers for selling and purchasing of products to satisfy their needs. Advertisement, gift giving, discount, etc. are some ways adopted to create competition.

5. Self interest and profit motive: Every activity in such system is profit based. Consumption is also done or based on self interest.

6. Class struggle: It divides the society into two classes one is rich in sources and called-capitalist and other class is source less and called labourers or workers. Profit earning by workers and exploitation gives birth to class struggle. It raises the gap between the rich and poor.

Then study of allocation, distribution of resources, capital and management of the factors of production is called economics.

(a) Land: According to ancient thought land is a free gift of nature. In economics land does not mean only earth but natural resources, climate,vegetation, mountains, water, mines etc. In the view of availability of land is stable. Land is a unmovable factor of production because it cannot be taken from one place to other. It is of different grade according to its fertility or production capacity. In the process of production, tax given to land owner in place of its use is called rent.

(b) Labour: Labour done by man to produce goods and services physically and mentally. That labour is considered labour in economics which is done to produce or gain something. For example: Labour done by housewife is not considered as labour while the same work done by servant is called labour. Labour is a movable means of production. Labour is not always rewardful. The reward got by a labour against labour is called wage.

(c) Capital: All those materials and man’s capability which are utilized in production is called capital. A part of capital is kept without use while some is utilised in future. It is one of the factors of production which is earned by man by utilising natural resources. It can also be said to be a tool of man. Machine, tools, industries and transport are example of capital.

(d) Entrepreneur: In production process a person who gave momentum to land, capital and labour is called entrepreneur. He produces by utilising means in right proportion. He takes risk for production, hence he is called brave and courageous. Without taking risk production can not be done. He is called as organizer and manager. His reward is that earning which is left after paying cost of production. It is called profit. It is not certain. He can get both profit and loss.

Correct Answer is: (a) Capitalist

Economy is the process of production, consumption, distribution and exchange of resources within a community or system.

(c) Integral individual

(c) More satisfaction to consumers

The three sources of ancient economic thought are: 

1. Vedas 

2. Upanishads 

3. Smriti

According to ancient economic thought society should be based on equality and welfare. It is mentioned in Rigveda, one who consumes food himself but keeps his friend, servant, guest, animals, birds, in starvation is a sinner. Western thought of economy give stress on maximum consumption and satisfaction. One the other hand balanced consumption with laborious earning and distribution is given stress in ancient Indian economic thought. This is mine that is yours is a mean thinking, while Vasudhev Kutumbkam is a high thought

Welfare of all, service to mankind is considered as humane and religious, universally in Indian culture. At present when gap between rich and poor is increasing, Ancient India’s economic thought of balanced and co-consumption, as well as justified distribution can be helpful to establish equality in society and social welfare. On the behalf of above discussion is a proof that Ancient economic thought of India is a new alternative of economic system.

Merits of mixed economy are: 

1. Full liberty of trade and consumption. 

2. Rapid economic development. 

3. Efficient use of resources. 

4. Decrease in economic inequalities. 

5. Easy control on trade cycles.

Production: Conversion of a raw material into finished goods which can be utilized to satisfy needs is called production. In other words, creation of utility is called production.

.Consumption: To satisfy needs directly by consuming goods and services is called consumption. The one who utilises the goods and services to satisfy his needs is called the consumer.

1. United Kingdom 

2. Australia 

3. United States of America

1. China 

2. Cuba

Following are the advantages of mixed economy :

• Adequate security : In mixed economy, an individual enjoys adequate security in economic sphere – an individual can spend his income freely, and can choose any occupation according to his interest and qualification. Freedom of obtaining personal benefit and owning property exists to a certain limit. 
• Decline in economic disparity : Economic disparity is a curse for any economy. The government imposes progressive taxes to decrease economic disparity in mixed economy. It makes efforts to check monopolistic tendencies, so that economic equality may be established in the society. 
• Efficient division of resources : In mixed economy, both public and private sectors work jointly and try to use the resources in an optimum manner. The private sector tries to make optimum use of these resources along with the motive of earning profit. The social sector uses these resources with the objective of social welfare. 
• Economic equality : In mixed economy, effort is made to obtain the objective of economic equality without sacrificing economic freedom Check is imposed on increasing prosperity of the private sector, and efforts are made to establish social security and economic equality in its place. 
• Freedom from exploitation : Mixed economy makes efforts to free the poor and middle class of the society from monopolistic tendencies and exploitation by the landlords. It implements welfare schemes for private workers and farmers. It forms laws and develops cooperation. 
• Planned and rapid economic development : Indeed, price mechanism does work in a mixed economy, but it is not provided complete freedom. Appropriate survey regarding the resources available in the country is done, planning is done about how to use them and their partnership in economic development is fixed. As the public sector plays an important role, balanced economic development of the country takes place and capital formation gains momentum.

Demerits of mixed economy : 

Following are the disadvantages of mixed economy:

• Difficulty in appropriate implementation : A mixed economy is formed by combining both, capitalist economy and socialist economy, and both of these have contradictory’ beliefs. Therefore, difficulty arises in their appropriate implementation. Neither economic planning is able to work well for this economy, nor does the infrastructure work well. 
• Unstable economy : Instability is present in mixed economy. The private sector makes the public sector useless, and the economy gets transformed into a capitalist economy. Sometimes the public sector becomes powerful to such an extent that it eliminates the private sector, due to which socialist economy gets established. 
• Incapable planning : In a mixed economy, a very large part of the economy remains out of government control and this part works for its personal greed and thus it becomes a major obstacle in success of plans. The public sector becomes unable to fulfill its objectives. 
• Corruption : Corruption is found to exist in a large extent in mixed economy. Political parties misuse the public sector for their personal greed and the private sector adopts the path of corruption to break laws continuously in order to break loose from government control for its personal benefit, due to which economic development is hindered.
• Black money : Another disadvantage of mixed economy is that this economy encourages black money Due to being a democracy, it becomes possible to form such laws over here which give birth to inequality of income in the economy. On one hand, there is excessive imposition of taxes, and on the other hand, tax evasion takes place, due to which black money increases in the economy. 
• Threat to democracy : Economic planning and government policies can gradually eliminate economic democracy. There is always a fear of emergence of dictatorship in the economy. In fact, this is only an apprehension. In a democracy, the actual power vests with the public at large.

Indian Economy – A mixed economy : India became a mixed economy after the industrial policy of 1948 and the first fiveyears plan. Industries were categorically divided in the industrial policies of 1956, 1977 and 1991. In the first five-year plan of India, developmental programmes and objectives were separately determined for both private and public sector. In 1954, inspired by the objective of establishment of a socialist society, the important role of public sector in economic development was understood and rapid industrialization took place.

In India, planned developmental policies implemented in a span of around 60 years resulted in rapid economic development, elimination of unemployment, check on centralization of economic power, balanced industrial development, agricultural development and increased social welfare, etc. Professor K.N. Raj has written that, “Although Indian economy is a mixed economy, yet the elements of mixed economy have retained it in the form of a capitalist economy and not as a socialist economy.”

1. The basis of economy is the individual or group. 

2. Investment is necessary for the economy.

Socialist economy.

The introduction of a mixed economy in India can be traced to the industrial policy of 1948 or industrial policy created after the first five-year plan.

Capitalist economy is an economic system which allows private property and in which financial decisions are taken privately. 

Characteristics of capitalist economy :

• Right to private property : In a capitalist system, every individual has the absolute right to own private property and to use it according to his wish. Private property can be also bequathed to his heirs after his death. 
• Economic freedom : In capitalism, a person has the freedom to use his property in any manner he wants, and also to select his enterprise. 
• Consumers’ sovereignty : In this economy, the sovereignty of the consumer is of special importance. The consumer is free to consume according to his interest and priority, and capability. 
• Objective of earning personal profit : In a capitalist economy, earning personal profit is the chief objective. No economic activity is done without motivation of personal profit. 
• Competition : In capitalism, competition is seen among buyers and sellers in commodity markets and resource markets. 
• Pricing structure/mechanism : In a capitalist economy the conduct, coordination and control of all economic activities is done by price mechanism, and not by any central authority.

Following are the merits of capitalist economy :

• Efficient production : Due to the motive of earning maximum profits and existence of absolute competition in the market, every entrepreneur tries to produce a better and more durable item as compared to another entrepreneur and uses ever-new techniques for this purpose. He also tries to minimise the cost of production thus, to maximise the profit. 
• Flexibility : Flexibility is an important characteristic of this type of economy. It has the capability of moulding itself in any way according to the need of time. 
• Development of the individual : Every individual makes efforts to increase his qualification and abilities in this competitive market because success is attained by the best person in trade. 
• Increase in standard of living : In capitalist economy, due to variation in products and items, the producer starts doing production on a large scale, due to which his cost of production starts to decrease and he sells the products at a lower price in the market. Due to this the standard of living of poor people increases. 
• Optimum use of resources : In a capitalist economy, the ultimate objective of the producer is increase in profits, therefore all the sources which are available in the economy are used in an optimum way and there is no misuse or wastage of resources.
• Automated : Price mechanism plays an important role in working of this economy. There is no type of external interference in this economy.  Technical advancement : Mutual competition exists between producers in a capitalist economy. Every producer wishes to produce maximum products at minimum cost, and for this, he uses the latest techniques of production. Capital formation is encouraged due to this.

Disadvantages of capitalist economy : 

Its major defects are the following:

• Unequal distribution of income and wealth : Inequality is seen in the distribution of income and wealth in this economy. This inequality arises due to private property, free competition, desire to earn maximum profit, etc. The rich become richer, and the poor become poorer. 
• Class struggle : Due to inequality in income and wealth, the society is divided into two classesone, the wealthy class and two, the poor class. The rich class lives a luxurious life, while the poor class finds it difficult to earn two square meals. This situation later on gives rise to class conflict. 
• Business cycle and economic instability : Because of being automated, the economy witnesses continuous ups and downs. Sometimes business becomes bullish while at other times, deperssion sets in. This results in great fluctuations in production and prices. 
• Unemployment and social insecurity : Due to existence of business cycles in a capitalist economy, the state of unemployment is created. Labourers/workers have no jobs and they become dependent on the wealthy class. Due to unequal distribution of wealth, their level of income drops and insecurity always remains in their life. 
• Exploitation : The exploitation of workers happens the most in a capitalist economy. Because of their marginal productivity, they do not receive fair wages in this system. They only get subsistence wages.

1. Co-existence of private and public sectors 

2. Controlled economy 

3. Economic planning.

Socialist economy.

1. Corruption 

2. Black Money 

3. Threat to democracy 

4. Unstable Economy.

1. Adequate security 

2. Removal of economic disparity 

3. Economic equality 

4. Protection from exploitation.