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Correct Answer is: (a) Two

The nature of economic system depends to a larger extent on the amount, nature and extent of interference by the state, and the social traditions of the economy.

The economy in which the government has control or ownership of the major resources of production, is called socialist economy.

An economy in which the private and public sectors co-exist and work together.

Mixed economy.

The main elements of the economy are production, consumption, exchange, and distribution, which relate to the life and livelihood of an individual and the group, and continue throughout life.

A system in which private ownership exists and financial decisions are taken privately, is called capitalist economy.

Following are the characteristics of mixed economy :

• Coexistence of public and private sector : The most important characteristic of this economy is that both public and private sectors coexist in this. Both the sectors work together. Industries of national importance, such as, infrastructural industries, arms and ammunition industry, electricity, etc. operate under the public sector, while consumer industries, cottage industries, agricultural industries, etc. operate under the private sector. The major objective is extending mutual cooperation to one another as these industries are complementary to each other in economic development. 
• Private property economic and economic equality : On one hand, an individual has the freedom to accumulate and own private property, while, on the other hand, the government also forms strict policies to maintain equality in distribution of income and wealth. On one hand the government levies income tax, property tax, etc. on private property and establishes its control and on the other hand, it provides welfare schemes such as old-age pension, basic facilities, etc. to poor people. 
• Price mechanism and imperative control : Both, price mechanism and imperative control operate in mixed economy. Through price mechanism, powers of demand and supply operate the economy. Determination of price of goods is done through demand and supply. Major economic decisions, such as what should be produced, in what quantity, how it should be produced and for whom it should be produced, etc. are made by price mechanism.
• Motive of personal benefit and social welfare : A mixed economy operates taking in view both objectives, i.e. motive of personal benefit and social welfare. Production is done with the motive of earning profit, and just like socialist economy, the major objective of planning system is optimum social welfare. If private industries do not work for public welfare then the government nationalizes them and transfers them from private sector to public sector. 
• Controlled economy : In order to maintain equal distribution of income in the economy, various policies such as levying progressive taxes, undertaking works of social security, controlling monopolistic tendencies, etc. are adopted. Maximum limit on land ownership is also determined.
• Economic planning : In a mixed economy, socio-economic objectives are obtained through economic planning. In the absence of planning, no economy can be considered to be a mixed economy, even if government interference and control exist in it. Major economic decisions are taken through planning itself.

Merits of both, socialism and capitalism are found in mixed economy as can be noted as follows:

• Adequate security : In mixed economy, an individual enjoys adequate security in economic spherean 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. Barring prohibited areas, an individual is free to start any business as per his discretion. 
• 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 public sectors work jointly and try to use the resources in an optimum manner. The private sector tries to make optimum use of these resources with the motive of earning profit. The public sector uses these resources with the objective of maximizing social welfare. Therefore, a mixed economy establishes coordination and balance between personal benefit and social benefit.
• 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. 
• Protection from exploitation : Mixed economy makes efforts to free the poor and middle class of the society from monopolistic tendencies and the exploitation perpetrated by the landlords. It forms welfare schemes for private workers and farmers. It forms laws and develops cooperation between various socio-economic groups. 
• Planned and rapid economic development : Indeed, price mechanism does work in a mixed economy, but not in complete freedom. Appropriate surveys regarding the availability of resources 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.

Correct Answer is: (c) Four

1. The right to own personal property 

2. Economic independence 

3. Objective of earning private profit.

In mixed economy.

Capitalist economy.

1. Unequal distribution of income and wealth 

2. Class struggle.

The developing economy is that, in which the real per capital income is lower than the current per capital income of developed countries.

(d) Is an economy with private ownership on sources of production

The main role of the government in socialism is that of central role. It owns the resource of production and directs economic actions.

Difference between developing economy and developed economy.

1. Low living standard 

2. Higher dependence on agriculture 

3. Lower levels of labour productivity

“An under-developed or developing economy is that in which per capita actual income is less than the present per capita income of developed economies like Canada, United States of America, Great Britain or Western European Countries.”

The ultimate goal of production is to satisfy consumer needs. Freedom of choice has to be provided to the consumers in all the economies and arrangement of exchange system has be done for this, for example, at food shops, consumer shops, etc.

Following are the mandatory processes of the economic system: 

• Production : The production of goods and services depends upon requirement, capability, techniques of production and amount of resources available. 
• Consumption : The requirements of a group of people are fulfilled by the use of goods and services. 
• Investment : Investment refers to the net increase in amount of capital (stock) in the present year as compared to the previous year.

In modem capitalism, elements such as inconsistencies in the market, preference to modem laws and consolidation, increasing influence of labour organizations, increase in public enterprises, moderate control of the state, etc. have emerged in new form, but still, even today, characteristics of pure capitalism are present in modem capitalism. However, now the governments are not remaining passive and they have started to perform their active role as social welfare agent in capitalist economy.

Due to private ownership and succession on property in a capitalist economy, some people are able to obtain income without labour. The landlords obtain revenue, capitalists obtain interest and rent, etc. Through this they sustain themselves on others’ income, generation after generation.

Following are the flaws of the socialist economy : 

• Lack of personal motivation : Personal benefit and right of owning private property are such elements which motivate an individual to work harder. Both these elements are absent in socialist economy. Nowadays, new experiments are being conducted in socialist economy to overcome this drawback. 
• Lack of productivity and skillfulness : In capitalist economy, the major objective of the producer is accruing maximum profits. Therefore, he makes efforts to maximize production at minimum costs, but in socialist economy, neither the sources are distributed for maximizing profit, nor the motivation of personal benefit exists, due to which, lack of productivity and skillfulness is found here.

Following are three important points favouring the socialist economy:- 

• Optimum use of economic resources : In socialist economy, all the natural and human resources are used by centralized planning. In socialist economy, the objective of centralized planning is maximizing social welfare and social security. 
• Freedom from trade cycles : Socialist economy is a planned economy, therefore ups and downs are less in this economy as compared to free-market economy. The government uses the resources in a planned way, while keeping in mind the objective of social security and maximum welfare. Therefore, there is less possibility of upsurge or slump in economy.

Following are the characteristics of socialism or planned economy :

• Government Ownership : In a socialist economy, ownership of government exists on all the major resources of production. All the resources of private property and production are nationalized and brought under government ownership. The resources are used in a planned manner for the motive of maximizing total welfare. Every citizen works while remaining under the influence of the government.
• Centralized planning : There is concrete arrangement of centralized planning in a socialist economy. The economy is run through centralized planning for the fulfillment of fixed objectives.
• Objective of maximizing social welfare : In socialist economy, the objective of the government is performing maximum social welfare. Personal profit is not important here. 
• Lack of exploitation : In socialist economy, exploitation of person is not done because the government itself runs the economy and its ultimate objective is maximum social welfare.
• Equality : In socialist economy, the entire property of the state is owned by the government. Private property does not exist and the objective of earning maximum profits is also not there, so there is no exploitation and equality is established. 
• Full employment : A major characteristic of socialist economy is that full employment is found in this economy. Due to efforts made for optimum arid best use of human resources, unemployment is not even visible here. Full employment exists in the economy.
• Concrete objectives : Socialist economy works with certain objectives. Objectives of the economy are fixed. The society as a Whole or the government decides these objectives and planned efforts are made to achieve them. Rapid industrialization, increase in standard of living, establishment of full employment, narrowing the inequality of wealth and income, etc. are some of the major objectives of socialist economy.
• Lack of competition : As the government is the major entrepreneur and there is centralized control in socialist economy, lack of competition is found here. Instead of cutthroat competition, government monopoly is visible here. 
• Development of heavy and infrastructural industries : Due to complete control and planning in socialist economy, heavy industries and infrastructural industries undergo rapid development. 
• Social Security : Due to government control in socialist economy, every individual gets social security from hunger, illness, accident, etc. The objective of socialism is maximum social welfare.

According to Professor Samuelson, “An underdeveloped or developing economy is that in which per capital actual income is less than the present per capital income of Canada, America, Great Britain or Western European countries”. In the first five-year plan, the Planning Commission has given a definition “Underdeveloped country is one which is characterized by the co-existence, in greater or lesser degree, of unutilized or under-utilized manpower on the one hand and of the unexploited natural resources on the other”. Economies of India, Bangladesh, Pakistan, etc. are called underdeveloped economies.

Following are the basic characteristics of developing economies :

• Low level of national income and per capital income : In developing nations, the level of national income and per capital income is lower as compared to developed economies. 
• Low standard of living : Due to lower level of per capital income of people in underdeveloped or developing countries, their standard of living is also very low, due to which their work efficiency also becomes less. The consumption level of necessary things such as food, clothing, housing, etc. also remains on the lower side. 
• Excessive dependence on agriculture : In underdeveloped countries, about 30 to 70 percent population depends on agriculture. Even after dependence on agriculture, low level of agricultural development also is another characteristic of developing economies, due to which the contribution of agricultural sector in per capital income declines and the income which is derived from agricultural sector remains low in ratio of the population engaged in this occupation. 
• Industrial backwardness : Industrial structure of underdeveloped or developing countries is usually backward and imbalanced and the development of basic and heavy industries such as iron ore, heavy engineering, machinery equipment, heavy chemicals, transportation, etc. is also comparatively less. Due to this, people get less employment in this sector and the contribution of this sector in gross domestic product is less.
• Low level of labour productivity : The level of labour productivity is low in developing countries. This is both a cause and consequences of low standard of living of an individual. Due to less productivity, the level of income is also low and this gives rise to poverty. Low level of labour productivity is caused by poor health of the workers, undeveloped skills, less motivation to work, institutional structure, etc. 
• Widespread poverty : The vicious circle of poverty goes on in the less developed countries. Due to the lower level of income per person and due to the income inequality, widespread poverty is prevalent. 
• Obsolete technique : Level of research and development is low in developing economies. Due to lack of resources, lack of capital and high labour availability in these economies, use of modern technology is also affected negatively. This results into a negative impact on productivity and level of quality of production. 
• Unemployment and disguised unemployment : Level of unemployment is very high in developing countries. In rural and urban areas, involuntary unemployment is largely found while disguised unemployment is found in agricultural sector.

Other characteristics :

1. Level of human welfare is low in underdeveloped countries. Their achievements regarding expected actual income, health and education are also low. 

2. Inequality in distribution of income and wealth is found in underdeveloped or developing economies. In developing countries, less attention is paid on taxation system, social security system, educational training, employment, etc. as compared to developed countries.

Developed Economy : Developed economy is that economy in which there is rapid economic development. Level of per capital income and national income is very high in it. Economies of United States of America, Canada, France, Germany, Japan, etc. are kept in the category of developed economy. 

Following are the major characteristics of developed economy:

• High national and per capital income : In developed countries, the level of per capital income and national income is very high and the standard of living of the residents here is very high. According to the 2012 report of World Bank, annual per capital gross domestic product of developed capitalist countries was at an average of 38,745 dollars in the year 2010. 
• High rate of capital formation : With a view to increase the level of production, the economists have always accepted the importance of capital formation. When a large part of national income is saved and reinvested, it is known as capital formation. Rate of capital formation is high in developed nations and the vicious circle of poverty is not present there 
• Importance of industries and non-agricultural occupations : A large part of population in developed economies is engaged in non agricultural occupations such as industries, transportation, communication, banking, insurance, etc. and the contribution of the service sector is more in national income. 
• Developed with technological point of view : Developed economies are capable economies from technological point of view. A large part of national income in these economies is invested in research and technology development. Techniques of production are continuously developed to increase productivity.
• Other characteristics : Apart from the above mentioned features, developed economies also possess the following characteristics.

1. In developed countries, human resource management and use is done in an appropriate manner. 

2. The awareness to provide momentum to the process of economic development is comparatively more in developed countries.

Correct Answer is: (c) Mixed

Capitalist Economy: It involves private ownership of economic activities, private interest and profit motive. Example, U.S.A, England, France, etc. have Capitalist Economy.

Socialist Economy: A system of economy where all means of production are owned by whole society, decisions are taken by the central authority and the collective interest is desired. Example, Former Soviet Union, Poland etc. had Socialist Economy.

In every country an individual is engaged in economic activity to earn his livelihood whether a farmer, doctor, labour, Industrialist, teacher and shopkeeper. Performance of different economic activities by different classes of people require an organisation or system. Such system is called Economic Management or in other words a system by which people earn their livelihood is called economic management.

Economic management is a frame or structure which develops a co-ordination and mutual co-operation among means and producers. It is a continuous process of production, consumption, distribution and exchange. For example for the production of sugar, producer takes sugarcane from farmer, machines and tools from industries and electricity from energy plants. Produced sugar, from one place to other, are sent by rail, truck and ships.

(c) Teacher teaching in a school

Ancient Indian economic thought in view of needs: Man’s wants are unlimited and sources of their supply are limited. Hence due to unsatisfied wants man becomes unhappy. It is given in Kandopnishad that a man’s needs can not be satisfied ever because they do not have needs but greed. One should earn with labour, so poverty should not remain in society, because poverty cannot satisfy the needs and give satisfaction.

Property: 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 land is stable. Land is a unmovable factor of production because it can not be taken from one place to other. 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. Machine, tools, Industries and transport are example of capital.

Economic activities: All those activities done by men to earn their livelihood and can be measured in terms of money are called economic activities. On the basis of material or things required for economy the main economic activities can be divided as follows:

(a) 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. 

(b) Producer: Producer is a person who produces goods and services to earn profit. For example, a farmer does farming, here a farmer is producer and farming is production.

(c) 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.

(d) Exchange: The meaning of exchange is to give self produced goods and services to others to satisfy their needs and taking goods and services produced by others to satisfy own needs.

In other words sale and purchase of goods and services by the consumer and producers in market is called exchange. For example, a consumer purchases wheat and pays for that to satisfy his needs.

(e) Distribution: To produce goods and services a producer needs some resources or means as land, labour, capital management and entrepreneur. Mutual Cooperation and combination of means help in production. Division of production among means is called distribution. Or in other words distribution of income earned by exchange of goods and services among different means is called distribution.

1. Dharma 

2. Artha 

3. Kama, 

4. Moksha.

Where capitalist economy presents man as economic man who is a machine of earning more and more money while socialist economy consider him as means of earning money. Indian ancient economic thought present him as integral individual (Ekatma Manav) according to which a man is a integrated form of ‘mann, budhi’ and ‘Atma’. A man’s thought of life goes around these four elements (Body, mind, soul and concious). For balanced development of these elements four Purusharthas are mentioned as duties of man by ancient Indian economic thought they are- Dharma, Artha, Kama, Moksha. It is clear that Indian economic thought give stress not only on physical development of man but also spiritual and moral development for his all round development.

Whole wisdom: Modem economies give stress on production for maximum profit earning based on self satisfaction and selfishness. While ancient economic thought tells about control of society and morality over decisions besides freedom and self interest in economic decisions related to economy and production or in other words it should include public welfare.

(a) Planned Mixed economy.

Man has unlimited needs while resources to satisfy these needs are limited. To satisfy man’s needs he has to do many economic and non- economic activities. The subjects which deals with the study of economy activities of men and society is called economy. In other words study of economic activities done by man to satisfy his and societies need is called economy.

Human activities can be divided into two parts: 

Economic activities and Non economic activities:

1. Economic activities: All those activities done by men to earn their livelihood and can be measured in terms of money are called economic activities. – 

On the basis of material or things required for economy the main economic activities can be divided as follows:

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

(b) Producer: Producer is a person who produces goods and services to earn profit. 

For example : A farmer does farming—in such act a farmer is a producer and farming is production.

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

(d) Exchange: The meaning of exchange is to give self-produced goods and services to others to satisfy their needs and taking goods and services produced by others to satisfy own needs. In other words sale and purchase of goods and services by the consumer and producers in market is called exchange.

For example: A consumer purchases wheat and pays for that to satisfy his needs.

(e) Distribution: To produce goods and services a producer needs some resources or means as land, labour, capital management and entrepreneur. Mutual Cooperation and combination of means help in production. Division of production among means is called distribution. Or in other words distribution of income earned by exchange of goods and services among different means is called distribution.

2. Non economic activities: Activities by inspiring, feelings, love, affection, social and religious duties, needs of body, love for nation are called non economic activities. Such activities are not measured in terms of wealth. 

For example: Caring of children by mother, cooking food for the family etc.

Labour means those people who work or are available for work. Some production requires highly educated workers to perform neôessary tasks.

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

(a) Dharma: It has wide meaning it is a quality related to honest livelihood. It should be adopted in behaviour discipline, moral and ethics are bases of good behaviour. They create the discipline and management in Society.

(b) Artha: Happiness and prosperity are result of Dharma. In Vedas prosperity, wealth and property are considered as Artha while according to ancient literature Vidya, Bhoomi, gold, silver, animals, wealth, crops, metals etc are considered as Artha.

(c) Kama: It a process of world’s continuity. It is the cause of greeds and origin of different activities according to Atharvaveda.

(d) Moksha: Money is a source or means not target. .By keeping one away from desires and leaving ties of karma is Moksha. Or not taking birth on earth or breaking the cycle of birth and death on earth is called Moksha or Nirvana.

Ancient Economic Thought: Fast extraction of natural resources, unlimited use of material and services, unwise consumption, fast industrialization has developed environmental degradation. Increased needs has given birth to degraded human values and moral values. These problems have stressed economists to find way of new economy which can be the solution of capitalist and socialist economy. In such situation Indian economic thinking has given an alternate economic system. Beside it has pathed the way to present economic problems. It is the gist of all those economic thoughts which have important place in ancient Indian scriptures. India’s prosperity of past is available in these scriptures due to which India has been rewarded with the title Vishwa Guru’.

Concepts of consumption

(a) Balanced consumption or tolerant or controlled consumption: We should consume earned money minimum and in controlled manner to satisfy one’s need. We should earn that quantity of money which could satisfy needs of an individual and his family. Consuming more than need is a crime and that fellow should be punished. One should earn honestly. According to Chanakya balanced consumption keeps an individual healthy. It is also given in scriptures what should be consumed and what not. One should consume goods and services as grace of God by keeping public welfare in mind. He should not think he has right over goods and services.

(b) Co-Consumption: We should consume things by distributing them in others. It should be based on equality and welfare. It is mentioned in Rigveda one who consumes food himself by keeping friend, servant, guest, animals, birds, in starvation is a sinner while western thought of economy give stress on maximum consumption and satisfaction. On the other hand balanced consumption with laborious earning and distribution is stressed in Indian thought. This is mine that is yours is a mean thought while Vasudhev Kutumbkam’ is a high thought. Welfare of all and service to mankind is considered as human religion universally in Indian culture.

At present when gap between rich and poor is increasing ancient thoughts of balanced and co-consumption as well as justified distribution can be helpful to establish equality in society and social welfare.

(b) Price-mechanism

The shape of economies depends upon how the processes of consumption, production, exchange and distribution are channelised and how much government interference exists in different activities of the economy.

Five countries of the world with the Capitalist Economy: U.S.A, England, Japan, Canada and Germany.

Main characteristics of the socialist economy: 

1. Resources are owned by the society. 

2. End of classes and economic equality. 

3. Economic planning. 

4. Maximum social welfare. 

5. End of consumers sovereignty