1. Name the three main types of economies. Describe the differences between the three.
An economy is the sum total of all the commercial activities like buying, selling, distributing, giving, taking etc. It does not include activities like reading books, cooking food etc. (Verma, K. and Mittal, G., 2009)
Market economy:-
In this system, prices are determined by the market forces of demand and supply and not mandates issued by the government. All the factors of production (land, labour, capital and organization) are managed and owned by private sector. Main feature is profit making in competitive market. All the economic units give due consideration to their self interests. It is also known as capitalistic economy. E.g. USA, Japan, Australia etc.
(Verma, K. and Mittal, G., 2009)
Planned economy:-
In this type of economy, state government regulates the factors of production. Prices of goods are decided by the government. Social welfare (and not profit maximization) is the only basis of production activities. Entire net earnings go to the state. It is also known as socialist economy E.g. Cuba, Bulgaria etc
(Verma, K. and Mittal, G., 2009)
Mixed economy:-
Both private and public sectors take part in the production factors. Private sector produces with profit motive and public sector with social welfare motive. In some areas of production, producers are free to take production decissions based upon profit maximization. In other certain areas such decisions are taken by government on the bases of social welfare. E.g. Canada, India etc.
(Verma, K. and Mittal, G., 2009)
2. Explain how market economies benefit from technological innovations.
Due to the technological innovations, market economy benefits in many ways. Some of them are listed below:
EASY COMMUNICATION
Technological advancement has caused a widespread improvement in communication. It has become much cheaper, quicker and efficient. About 15 years ago, it was only in some us countries that...