Types of Economies — Flashcards

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An economy is the way a nation makes choices about how to use its resources to produce and distribute goods and services. It shows how production and distribution are organised in a country.

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An economy can be classified on the basis of ownership of means of production and on the basis of the level of economic development.

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Capitalism is a form of economic organisation in which means of production are owned by private people and operated for profit. It is also called a free economy or laissez-faire economy. Businesses ar…

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Adam Smith considered the price mechanism as an invisible hand. It means market forces help solve production and consumption problems automatically under capitalism.

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The main features are private property, freedom of enterprise and contract, freedom of consumption, market mechanism, profit motive, and high competition. Government interference is very limited.

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Right to property under capitalism is not absolute. People cannot use productive resources for undesirable goods. The right exists, but it can be restricted for public interest or national security.

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A capitalist economy can produce a variety of goods, use resources efficiently, encourage hard work, support technological progress, and raise production and living standards.

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A capitalist economy often creates income inequality, class conflict, unemployment, economic fluctuations, and exploitation of workers. Social welfare may be ignored in the race for profit.