Rajasthan Board RBSE Class 11 Economics Notes Chapter 3 Economy or Economic System
→ Economic system refers to that constitutional and institutional structure of a country under which overall economic activities are conducted.
→ All human activities such as consumption, production, exchange, distribution and revenue take place within economic system or economic organization.
→ In present times, economist are emphesizing more on economic growth or economic development.
→ Economy is man-made and it performs a study of economic activities.
→ Three mandatory processes of economy – production, consumption and exchange, are associated with sustenance of the life of the individual and the collective society, and these continue throughout the life.
→ The ultimate goal of production is satisfaction of wants of the customers.
→ Development is the responsibility of the economy or economic system.
→ Now the capitalist countries have begun to support the important role of the state, and no large believe in the old “Policy of freedom”.
Economy can be classified on the following bases-
(i) On basis of the ownership of resources of production
- Capitalist economy
- Socialist economy
- Mixed economy
(ii) On basis of the level of development
- Developing economy
- Developed economy
• Capitalist economy is that economy in which private ownership and control exists on the resource of production and also on distribution.
• Capitalist system was born after the 18th century along with the industrial revolution in England and Europe.
The characteristics of capitalist economy are as follows:
- Right to own property.
- Economic freedom.
- Coftsumer’s sovereignty.
- Objective of earning private profit.
- Competition.
- Price mechanism.
Qualities of Capitalist Economy-
- Efficient production
- Flexibility
- Development of individual
- Increase in living standard
- optimum use of resources
- Automated
- Technical advancement.
→ Capitalist economy has many qualities but it is considered as a wasteful economy.
→ Uneven distribution of income and wealth, class struggle, business cycle and economic instability, unemployment and and social insecurity, exploitation, unearned income and social parasitism, lack of public welfare, etc., are found in capitalist economy.
→ Due to many defects in the capitalist economy, a new economic ideology was bom which is known as socialist economy.
→ Many countries of the world, such as Cuba, China, Vietnam, etc. have socialist economy.
→ Socialism is the form of economic system in which the government has ownership and control over the major sources of production and distribution.
→ The socialist economy is characterized by government ownership^ centralized planning, the objective of maximum social welfare, lack of exploitation, equality, full employment, concrete objectives, lack of competition, development of infrastructural basic heavy industries, social security.
The following qualities are found in the socialist economy
- The best use of economic resources
- Freedom from the business cycle
- Rapid economic development
- Better solution of infrastructural problems
- Balanced development
- Absence of class conflict and exploitation
- Economic equality
→ In the socialist economy, defects like faulty distribution of means of production, the elimination of sovereignty of the consumers, lack of individual motivation, lack of productivity and skill, development, cumbersome bureaucracy, centralization of power etc.
→ Mixed economy is that economy in which there is sufficient co-existence of private and public sector. The control and monitoring of both are regulated by the government in such a manner, so that both together produce rapid economic growth and ensure maximum social welfare work.
→ The following characteristics are found in mixed economy: Private and public sector co-existence, private property and economic equality, pricing mechanism and state control, motivation of personal profit and social welfare, etc.
→ In a mixed economy, the following qualities are found : adequate security, decline of economic disparity, efficient sharing of resources, economic equality, protection against exploitation, planned and rapid economic development, etc.
→ Defects like difficulty in efficient implementation, inefficient planning, corruption, black money, and threat to democracy, etc are found in mixed economy.
→ The introduction of mixed economy in India was effected through the industrial policy of 1948, and industrial policy of 1956, 1977, 1991 after the first five year-plan.
→ That economy is called a developed economy in which economic growth is maintained at a quick pace, per capita income and national income levels are very high.
→ Higher national per capita income, high rate of capital formation, priority to industry and non- agricultural sectors, advanced technology, etc. are found in the developed economy.
→ The developing economy is that in which the real income per person is less than the real income per person in developed countries and is generally lower than the current per capita income of the Western countries.
→ In developing economies, generally a low level of national and per capita incomes, low living standards, higher dependence on agriculture, extensive poverty, backwardness of technology, unemployment, and disguised unemployment, etc. are found.
Economy or Economic System Class 11 RBSE Notes Important Terms
• Economic System : The institutional structure, under which the human activities related to consumption, production, exchange, distribution of revenue are conducted is called economic system.
• Production : It involves the production of goods and services.
• Consumption : Under this, the satisfaction of the needs of the individual and society is obtained through the use of goods and services.
• Investment – The net increase in the amount of capital in the current year as compared to last year is called Investment.
• Capitalist Economy – System in which private property exists and financial decisions are taken privately, is called capitalist economy.
• Socialist Economy : In this economy, the major economic activities are governed and conducted by the government for social welfare.
• Mixed Economy : Mixed economy is the economy in which private and public sectors work together.
• Developed Economy : The economy in which economic growth is fast and the per capita income and national income levels are high.
• Developing Economy : The developing economy is that, in which the per capita real income is lower than the current per capita income of developed countries.