An economy is a system of organizations and institutions that is responsible of the production and distribution of goods and services in a society. Economies determine how resources are distributed among members of a society, they determine the value of goods or services and they even determine what sorts of things can be traded for those services and goods. Adam Smith is widely regarded as the father of modern economics.
Types of Economies
- Capitalist or Private Economy
- Mixed Economy
Capitalism is an economic system in which capital goods are owned by private individuals or businesses. It is based on private ownership of the means of production and their operation for profit.
Socialism refers to the government ownership of the means of production, planning by the government and income distribution. Socialist means the system under which economic system is controlled and regulated by the government so as to ensure welfare and equal opportunity to the people in a society.
The idea of socialism is first introduced by Karl Marx and Fredric Engles in their book, ‘The Communist Manifesto’.
Communism, also known as a command system, is an economic system where the government owns most of the factors of production and decides the allocation of resources and what products and services will be provided.
An economic system combining private and state enterprise. It is a golden mixture of capitalism and socialism. Under this system there is freedom of economic activities and government interferences for the social welfare. Hence it is a blend of both the economies. The concept of mixed economy is of recent origin.
The developing countries like India have adopted mixed economy to accelerate the pace of economic development. Even the developed countries like UK, USA, etc. have also adopted ‘Mixed Capitalist System’.
Economies on basis of Sector
- Primary Sector: Primary sector is based on natural resources, Agriculture activities, dairy farming, fishing, mining, Horticulture are some primary sector activities.
- Secondary Sector: It is also called as Industrial sector. Activities of primary sector are used as raw material for secondary sector. Like cotton is turned in fabric in industries.
- Tertiary Sector: The tertiary industry is the segment of the economy that provides services to its consumers; this includes a wide range of businesses such as financial institutions, schools and restaurants. It is also known as the tertiary sector or service industry/sector.
Economies on basis of Development
- Developed Economies
- Developing Economies
- Underdeveloped Economies
A developed economy refers to a country with a relatively high level of economic growth and security. Common criteria for evaluating a country's degree of development are per capita income or gross domestic product (GDP), level of industrialization, general standard of living, and the amount of widespread infrastructure. Eg: US/Japan
- Technology – Highly Developed.
- Natural Resources – Utilised.
- GDP – Max Contribution by service sector.
- Literacy - Maximum
A developing economy is one where people have a lower standard of living and less developed industries than other countries. Eg: India
- Technology – Developing.
- Natural Resources – Utilising.
- Literacy – Moderate.
In economics, underdevelopment is when resources are not used to their full socio-economic potential, with the result that local or regional development is slower in most cases than it should be, specially compare with the investment and innovation in countries that surround it. Eg: Sudan
- Technology – Backward.
- Natural Resources – Not Utilised.
- Literacy – Very low.