What is Economy, Types and Sectors of Economy
Economics is the study of how scarce resources are utilized to produce the valuable goods and services efficiently and distribute them among different sections of society. The government makes decisions on how to use these resources and distribute to people of nation. These set of decisions are termed as Economic Policies. Economy is a general term used to represent country.
Types of Economy
There are three types of Economy:
- Capitalistic Economy
- State Economy
- Mixed Economy
- Capitalistic economy is also known as Market Economy or Private Enterprise Economy
- It is a laissez faire economy where there is no interference by government
- Outcome of work of Adam Smith
- Government have no economic role to play
- Market forces decides what to produce, how much to produce and at what prices to sell.
- Capitalistic Economy was prevalent in USA, Europe.
- State Economy is also known as Socialistic Economy, Communist Economy, Planned Economy, Non-Market Economy
- Government decides production, supply and price of goods
- It is exactly opposite to Capitalistic Economy
- State Economy was prevalent in Russia, China.
- Influenced by work of Karl Marx
- Goods are categorised into public goods and private goods
- Public goods are basic goods and services produced by government. They are intended to guarantee minimum level of health, education, nutrition to all etc. they are also known as social sector goods. These goods are either subsidized or distributed free of cost by government
- Private goods are all goods and services which are not classified as public goods. The market forces decide their demand, supply and price
- India practiced this type of economy
Sectors of Economy
There are three sectors of economy:
- Primary Sector: Economic activities which involve direct use of natural resources such as agriculture, mineral, forestry etc constitutes the Primary sector of economy.
- Secondary Sector: It is also known as manufacturing or industrial sector. It uses product of primary sector as raw material to produce goods. Bread, Car, Newspaper etc are example of products of secondary sector.
- Tertiary Sector: Economic activities which involve production of services is known as Tertiary Sector or Service Sector. For example banking, insurance, education, tourism etc.
Types of Economy based on sector
Based on dominance of sector, the economy can be classified into three types:
- Agrarian Economy: The share of primary sector is more than 50% of total output of economy.
- Industrial Economy: The share of secondary sector is more than 50% of total output of economy.
- Service Economy: The share of tertiary sector is more than 50% of total output of economy.
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- National Income Definition, Measurement, GDP, GNP, NDP
- Economic Growth and Development
- Poverty, Types of Poverty, Poverty Line
- Inflation; Types, Effects and Causes of Inflation
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