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Economic Theory

2) prices are administered: the prices are not fixed always by forces of
demand and supply. In the case of goods which are scarce, the prices are
administered by the government and such goods are also rationed;
3) social welfare: in a mixed economy, planning is centralized and

there is overall welfare. Workers are given incentives and reward for any
innovations. There is social security provided to the workers. Inequalities

of income and wealth are reduced.
Demerits of Mixed Economy:
1) lack of co-ordination: the coordination between the public and
private sectors is poor in a mixed economy. Public sector spends huge

public resources for infrastructure. The private sector aims at profit
maximization by using the infrastructure created by the public sector. But
they lack social responsibility and fail to spend for public causes like

health, education. The private sector also dislikes any restriction imposed
on it by the government.
2) red-tapism and delay by Public Sector: there is every chance that
the public sector works inefficiently. There is too much of red-tapism and

corruption leading to delays in decision-making and project
implementation. They result in inefficiency and also affect production.
3) economic fluctuations: the mixed economies experience economic

fluctuations. On the one hand, the private sector does not operate under
very rigid conditions prescribed by the government. On the other hand, the
public sector too does not operate under very rigid conditions enforced by
the planned economy. The lack of policy coordination between private and

public sector results in economic fluctuations.

ASSIGNMENTS

Review Questions

1. Name the important general economic systems.

2. What is traditional economy?
3. Is traditional economy a subsistence economy?
4. What is capitalism?
5. What is the basic force that drives a capitalist economy?

6. What are the salient features of capitalism?
7. What is the basic force that drives a capitalist economy?
8. What are the basic features of socialism?

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