Indian Economy Quiz: Types of Economies: Capitalist, Socialist and Mixed

In a capitalist or market economy the means of production are privately owned and nobody issues orders about production.

The Scottish economist published the Wealth of Nations in 1776 and is called the father of economics; he argued that if each person pursues his own interest in a free market, an invisible hand guides the outcome to the good of society, which became the classic defence of capitalism and…

In such an economy the state owns and runs the industries that need very large capital or serve strategic and social purposes, regulates the rest by law, and leaves ordinary production to private enterprise, while keeping responsibility for welfare and employment.

Marx published the first volume of Das Kapital in 1867; it analysed capital, surplus value and the exploitation of labour and became the basic text of what is called scientific socialism.

Because resources are scarce and wants are unlimited, every economy must answer three questions, and these are called its central problems: what goods and in what quantity to produce, how to produce them, that is by which technique and combination of labour and capital, and for whom to produce, that…

The Industrial Policy Resolution of 1956 followed the Congress session at Avadi that called for a socialistic pattern of society, and it gave the public sector the commanding role.

It inserted the words socialist, secular and integrity into the Preamble, so the description of India became a sovereign socialist secular democratic republic.

A severe balance of payments crisis, with foreign exchange reserves down to a few weeks of imports, forced the government to announce the New Economic Policy in July 1991.

It is called a command economy because a central planning authority, and not the market, commands how resources are used: it fixes the targets of output, allots raw materials to factories and often fixes prices and wages as well.

Consumer sovereignty means that the spending of consumers decides what is produced: a producer who makes what buyers do not want earns no profit and leaves the business, so in a market economy the consumer is said to rule.

Charles Fourier and Saint-Simon were French thinkers of the early nineteenth century who, with Robert Owen in Britain, argued that competition should be replaced by cooperative and planned communities in which property is held in common.