The study of how humans efficiently use resources to produce goods and services and then distribute them among individuals is called economics. Many countries which are having less natural resources (coal, iron, gold, crude oil, etc.) are also able to provide better living in terms of money and income to their people while many countries having ample amount of natural resources but they are still not able to provide better income and living. For example certain north american countries are not rich in natural resources but there per capita income and living standard is higher than some african countries which are rich in natural resources. The reason behind this is the lack of strategy in efficient use of their resources like, land, labour, capital etc to produce valuable and useful goods and services. The more good economic planning and strategy there will be the more per capita income and good growth of the region.
Division of Economics
Economics is mainly divided into two branches:
(1) Microeconomics: It deals with the study of decisions that people and buisnesses are needed to decide. The study by brand about their product reasonable price and how they can become profitable, efficient, and maximize their production etc. are the study of Microeconomics.
(2) Macroeconomics: It is the study of national economy as a whole. It deals with the: how GDP is calculated and what are the methods of calculating it, how GDP affects unemployment rate, how central banks uses monetary policy to control the money supply, what causes international financial crisis, how net export affects nations capital account, and many other things.
The UPSC CSE syllabus is concentrated to Macroeconomics.
Three Questions Faced by Each Economy
Every economy needs to answer three basic questions.
What goods they have to produce? A society must have to determine how much each many goods and services it will make. Wll they produce more cars or more tractors? How much of them will be of High quality and how much of them will be of Low quality? and many others questions are needed to be answered.
How these goods are to be produced? There is a question regarding who will produce with what resources and using what technique. Who will do the farming who will sell produce to mankinds? Are we going to use electricity generated from coal, oil or sun? Who will work in which factory and many like this.
For whom they are to be produced? How will be the distribution of income and wealth? Does high income goes to sportsmen, teacher or doctor or to anyone else? Will society provide minimum consumption to the poor or not?
Types of Economic System
The three questions which we got to know are still as relevant today as they were at the dawn of human civilisation. The type of economy in which we are in can be told by knowing that who is deciding about these issues. If government is making all the decisons about these than it is a Socialist Economy. It is also called as command economy.
If private players and market is deciding and making all the decisions than it would be called Capitalist Economy. It is also called as laissez-faire economy.
Any economy in the world is not fully socialist and fully capitalist but most of them are on a way to becoming more and more capitalist by leaving more decisions to be made by market forces and they are called Mixed Economy.
Which is Better?
| Type | Ownership of Resources | Decision-Making | Wealth Distribution | Examples |
|---|---|---|---|---|
| Socialist Economy | Owned by the government or community | Centralized (government-planned) | Equal or equitable distribution | Former Soviet Union, Cuba |
| Capitalist Economy | Privately owned by individuals | Decentralized (market-driven) | Based on individual ability | United States, Singapore |
| Mixed Economy | Both public and private ownership | Shared between government and market | Balanced between equity and merit | India, Sweden |
USA (Capitalist Model): America followed a capitalist economy model. It became the leading power in the world, making miraculous advances in industrial development and technology. However, capitalist economy also increases unemployment and income disparity.
Soviet Union (Socialist Model): Soviet union followed socialist economy model. Due to which unemployment was eliminated, education and health became universal. However, strict government rules slowed down creativity and made it hard to fulfill people’s needs. It ultimately failed in 1991.
Mixed Economy: The Perfect Solution: A mixed economy takes the best of both systems. The government provides essential services, while private businesses focus on new ideas and competition. Countries like India, Scandinavia and China follow this approach well. Mixed economy creates a good balance between people’s needs and the market.
