The solution of central problems of an economy depends upon its
nature. We can classify an economy in three broad categories.
(i) Capitalist
economy
(ii) Socialist
economy
(iii) Mixed
economy
(a) Capitalist
Economy
In a capitalist economy the price mechanism which works on the principle
of demand and supply, solves the problem of what to produce i.e. the problem of
allocation of resumes. The producers will demand, the price for which supply in
short of its demand. The price for the commodity in the market will go up.
Therefore, it will be signal for the producers to transfer factors of production
to produce a particular commodity.
The problem of how to produce is also solved in a capitalist
economy with the help of price mechanism. A producer can maximize profit by
brining down the lost of mechanism. A producer therefore, he will employ those
factors of production which cost him least. For example, if capital is
relatively cheaper than labor, more units of capital will be used than labor
and vice versa. The producers will determine capital-intensive techniques or
labor intensive techniques on the basis of price mechanism. Thus, how to
produce problem too can be solved with its help.
The price mechanism also helps in the solution of for whom to
produce problem. This problem is related to the problem of distribution of
money income, which in turn depends upon the reward paid to the different
factor of production homely land, labor capital & entrepreneur. The reward
of each of the factor of production is determined and decided by their
respective demand and supply. The equilibrium between demand and supply of each
of the factors determines their respective price. The price of factors of
production determines the level of income, which turns, determines the amount
of consumption and effective demand.
Socialist economy
Since the ownership over means of production lies in the hands of
the state, therefore the question of what. How and for 'whom and settled by the
state with the help of a central agency like planning commission. It is the
state, which allocates the resources of the economy among the different uses.
All the sector of the economy is under the state and as such the allocation of
resource among the various uses is done a most judicious manner. The state
works for the welfare of the society as a whole. The price system is replaced
by economic planning. The central planning agency allocates resources after
taking civil military and other needs into consideration. In brief, the state
organisms all economic activities and produces and distributes the goods among
the consumers on the basis of us own decisions.
Mixed Economy
The Co-existence of both capitalist and socialist system in an
economy is called mixed economy. A mixed economy has both the private &
public sectors. A mixed economy is further classified into mixed capitalist
economy and mixed socialist economy. In the former type of economy the lead
role is played by private sector and the state plays just supporting role. Japan is an
example of this type of economy. In the later type of economy the public sector
plays a lead role and private sector supports it. Nepal is the best example for this
type of economy. In mixed economy central planning agency along with price
mechanism operates simultaneously to solve the problem of what now and for
whom.
No comments:
Post a Comment