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Types of Economy |
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Before knowing the type of economy one must know what exactly the term economy means. Economy is the system of production, exchange and consumption of goods and services. The meaning of the economy kept on changing in the past few decades. The industrial revolution gave a strong meaning to the word economy. A country's development and progress depends on its economy. There are basically three types of economy – Planned Economy, Free Market Economy and Mixed Economy.
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- Planned Economy – In this economy the economy is managed by government. All major sectors of economy are managed by government. Government takes all the major decisions like what to be produced in what quantity. They formulate all plans that how much is to be consumed. A planned economy comprise private enterprise and state owned enterprise and the combination of both. In this economy government regulates controls all the matters related to the distribution, production, consumption, etc. There are many advantages in this type of economy. This economy ensures sufficient investment and steady growth. The equal distribution of wealth is also a big advantage of this economy. One more thing to note in this economy is that there is little incentive to improve the output, quality or productivity. These things makes it as one of the important types of economy.
- Free Market Economy – In this type of economy the decision of what to be produced and in what quantity is operated by price mechanism. As the name of this economy suggests the consumers and businesses are free decide as what to be produced and purchased. That means the producer are free to decide that how much is to be produced and at what price. The pressure of competition, demand and supply influence the decision in free market economy. Consumers have full right to decide from whom to buy. This type of economy will enhance job opportunities. This will also increase the wealth. No economy can exist without free market economy.
- Mixed Economy – In this economy both private and public sector co-exist. The decision is taken by both public and private enterprises. Basically it is a mix of both the above mentioned types of economy. This economy has both the elements of socialist and capitalist economy. In all the countries this type of economy exist. This economy helps in solving the problem of both capitalist and socialist economy.
These types of economy plays a major part in nations development |
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