Economy is of various types. Smallest type of economy is a Household Economy, where a few members satisfy family wants by earning something. Many a time an economy is divided into Village economy, Town economy, Regional economy, National economy and whole world or International economy. Generally, the economy is classified on the basis of ownership and level of development.
(a) On the basis of ownership. An economy is of three types viz. (i) Capitalist economy, (ii) Socialist economy, and (iii) Mixed economy.
(b) On the basis of level of development. An economy is of two types viz. (i) Developed economy, and (ii) Underdeveloped economy.
A capitalist economy is an economy in which all the economic activities are regulated and controlled by market conditions without any outside interference. In other words, a capitalist economy is a system where there is a private ownership of factors of production. Production is done with a view to earn profit. In such an economy what, how much and where to produce depend on price mechanism. Thus, the people in such an economy have ftll economic freedom as producers, sellers, buyers, employees, employers, owners and consumers. Capitalist Economy is also known as Free Enterprise Economy, Free Market Economy etc.
According to Prof. McConnell, “A capitalist economy may be characterized as an automatic self-regulating system motivated by the self-interest of individual and regulated by competition.”
Socialist economy is an economy which is owned and controlled by the government. Here all the economic resources of the country are owned by the government and these are used in the public interest. All the like what to produce, how much to produce, how to produce etc. are taken by the Government in view the public interest. Economic activities are controlled and managed by a Central Planning Authority. Income is also distributed among individuals on the basis of their needs and efficiency. Thus, Socialist economy is a kind of system under which economic system of the country is controlled and regulated by the Government so as to ensure welfare and equality of opportunity to the people in a society.
According to Samuelson, “Socialism refers to the Government ownership of the means of production, planning by the Government and income redistribution.”
It is a mixture of the characteristics of capitalist and socialist economies. In this economy, like capitalist economy, certain economic activities are fully owned and controlled by private enterprise and rest of the economic activities, like socialist economy, are controlled by the Government. Mixed economy is a golden mean between two opposite ideologies. It is a coordination and mixture of the merits of both the economies, setting aside their demerits. Thus Mixed Economy is that economy in which private ant/public sectors co-exist and coordinate for achieving a common economic objective.
According to Samuelson, “Mixed economy is an economy in which both public and private institutions exercice economic control”
It is an economy where the pace of economic growth is at its maximum, national and per capita income is very high and country has reached the tertiary stage after crossing primary and secondary stages. The standard of living in such an economy is very high. Generally, the word ‘economic growth’ is used for a developed economy. The economies of the countries like America, England, Germany, Japan, Canada, France etc. are developed economies.
Under-developed or developing economy is that where there is no full or maximum use of available resources due to vicious circle of poverty. Per capita income is less and standard of living of the people z low, In other words, this is that economy where (a) per capita real income is lower than in developed countries, (b) human’ and natural resources are not fully utilized, (c) production technique is inefficient and traditional and (d) there is desire for economic development. But as the country goes on developing, the modern industrial sector, though small, keeps increasing in size and the traditional agricultural or rural sector keeps shrinking.
According to Prof. M.P. Todaro, “Under-developed economy is that economy in which there are low level of living, absolute poverty, low per capita income, low consumption levels, poor health services, high death rate, high birth rate and dependence on foreign economies. “The under-developed economies in the world are Pakistan, Indonesia, Ceylon, Bangladesh etc.