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Types of Economies - Questions & Answers

MULTIPLE CHOICE QUESTIONS

1. Which of the following is a feature of capitalistic economy?
(a) Social welfare
(b) Absence of competition
(c) Government is the only producer
(d) Freedom of enterprise
Answer: (d) Freedom of enterprise

2. Which of the following is NOT the feature of a capitalistic economy?
(a) High degree of competition
(b) Economic planning
(c) Freedom of consumption
(d) Profit motive
Answer: (b) Economic planning

3. Identify the feature of a socialist economy.
(a) Social property
(b) Economic planning
(c) Absence of competition
(d) All of these
Answer: (d) All of these

4. _______ is an economic system which has elements of both capitalism and socialism.
(a) Unplanned economy
(b) Developed economy
(c) Underdeveloped economy
(d) Mixed economy
Answer: (d) Mixed economy

5. Under _______ profit motive is replaced by the motive of social welfare.
(a) Capitalism
(b) Mixed economy
(c) Socialism
(d) None of these
Answer: (c) Socialism

6. Which of the following is true about a capitalist economy?
(a) Large inequalities of income exist
(b) Economic fluctuations are widely seen
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer: (c) Both (a) and (b)

7. Which of the following type of economy has purely private ownership?
(a) Socialist economy
(b) Capitalist economy
(c) Mixed economy
(d) Traditional economy
Answer: (b) Capitalist economy

8. Who determine prices in a capitalist economy?
(a) Government
(b) Big corporates
(c) Market forces
(d) None of these
Answer: (c) Market forces

9. Capitalist economic system is the feature of which of these countries?
(a) USA
(b) UK
(c) Japan
(d) All of these
Answer: (d) All of these

10. Which among the following is a guiding factor for the capitalist economy?
(a) Profit motive
(b) Private property
(c) Both (a) and (b)
(d) Neither (a) nor (b)
Answer: (c) Both (a) and (b)

11. A mixed economy is characterized by the co-existence of
(a) Modern and traditional industries
(b) public and private sectors
(c) Foreign and domestic sectors
(d) Commercial and subsistence sectors
Answer: (b) public and private sectors

12. An underdeveloped economy is characterized by
(a) High per capita real income
(b) Large proportion of the work force in the service sector
(c) State of deprivation of large proportion of population
(d) All the above
Answer: (c) State of deprivation of large proportion of population

13. Scarcity of capital, technological backwardness and unempolyment are generally found in
(a) Developed countries
(b) Underdeveloped countries
(c) Both (a) and (b)
(d) None of these
Answer: (b) Underdeveloped countries

14. Economic development is characterised by
(a) increase in real national income and per capita income
(b) Structural change in the economy
(c) Both (a) and (b)
(d) None of these
Answer: (c) Both (a) and (b)

15. Which of the following is NOT one of the problems facing most developing nations?
(a) Rapid population growth
(b) Scarcity of capital
(c) Labour shortages
(d) Foreign dependence
Answer: (c) Labour shortages

16. Developing countries, compared to other countries, have
(a) a lower rate of illiteracy
(b) a greater degree of equality in the distribution of income
(c) a lower rate of unemployment
(d) a smaller percentage of urban population
Answer: (d) a smaller percentage of urban population

17. In a pure market economy, the production decision is primarily based upon which of the following?
(a) Government decrees and five-year plans
(b) The forces of demand and supply
(c) Historical customs and traditions
(d) The goal of achieving absolute equality
Answer: (b) The forces of demand and supply

18. Which economic system was adopted by India after independence in 1947?
(a) Capitalist system
(b) Socialist system
(c) Mixed economy
(d) Command economy
Answer: (c) Mixed economy


ASSERTION - REASONING & MATCHING BASED QUESTIONS

1. Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): Absence of competition is a feature of capitalist economy.
Reason (R): Under capitalism, there is high degree of competition in the commodity as well as factor market.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Answer: (d) Assertion (A) is false but Reason (R) is true.

2. Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): In a socialist economy only those goods are produced which are in great demand.
Reason (R): Under socialism, social welfare is the chief motivating force behind all economic activities.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Answer: (d) Assertion (A) is false but Reason (R) is true.

3. From the set of statements given in Column I and Column II, choose the correct pair of statements:
Column I
(A) Advantage of capitalist economy
(B) Feature of mixed economy
(C) Disadvantage of socialism
(D) Features of a developed economy
Column II
(i) Social Welfare
(ii) Coexistance of public and private sector
(iii) Cut throat competition
(iv) Low per capita Income
Answer: (b) (B) - (ii)

4. Identify the correct sequence of alternatives given in Column II by matching them with respective terms in Column I:
Column I
(A) Under developed economy
(B) Developed economy
(C) Capitalist economy
(D) Socialist economy
Column II
(i) Private ownership
(ii) Social welfare
(iii) High level of per capita income
(iv) Wide Spread Poverty
Choose the correct alternative:
(a) A – (iii), (B) – (i), (C) – (iv), (D) – (ii)
(b) A – (iv), (B) – (iii), (C) – (i), (D) – (ii)
(c) A – (iii), (B) – (iv), (C) – (ii), (D) – (i)
(d) A – (iv), (B) – (i), (C) – (iii), (D) – (ii)
Answer: (b) A - (iv), (B) - (iii), (C) - (i), (D) - (ii)


SHORT ANSWER TYPE QUESTIONS

1. Define a capitalist economy.
Answer: Capitalist economy refers to a market economy in which all decisions regarding what, how and for whom to produce are governed by the market forces of supply and demand. The government does not interfere in the process of decision making.

2. Define a socialist economy.
Answer: Socialist Economy is one wherein means of production are owned and controlled by the government.

3. What is a mixed economy?
Answer: Mixed economy is the one in which both private as well as public sectors co-exist. Production of most goods is left to the free play of the market forces. However, there are government controls as well as regulations with a view to maximising social welfare.

4. Give two features of a capitalist economy.
Answer: (i) All factors of production are owned by the individuals. (ii) Profit motive is the primary motive of all economic activities.

5. Give two main advantages of capitalistic economy.
Answer: (i) It provides an incentive to hard work. (ii) There is economic freedom to both producers as well consumers.

6. Give two principle features of a socialist economy.
Answer: (i) All factors of production like land, capital (man made resources) and natural resources are owned by the state. (ii) Social welfare is the primary motive of all economic activities.

7. State two merits of a socialistic economy.
Answer: (i) It ensures social justice. (ii) It ensures social security to everybody.

8. State two advantages of a mixed economy.
Answer: (i) It is a good compromise between capitalism and socialism. (ii) It promotes healthy competition between public sector and private sector.

9. State two characteristics of developed economies.
Answer: (i) In a developed economy, the level of per capita income is very high. (ii) The standard of living of the people is high.


LONG ANSWER TYPE QUESTIONS

1. What is a capitalistic economy? State its merits.
Answer: Capitalist economy refers to a market economy in which all decisions regarding what, how and for whom to produce are governed by the market forces of supply and demand. The government does not interfere in the process of decision making.
Merits: (i) It provides an incentive to hard work. (ii) There is economic freedom to both producers as well consumers. (iii) Economy's resources are used in an efficient manner.

2. What is a socialistic economy? State its advantages.
Answer: Socialist Economy is one wherein means of production are owned and controlled by the government.
Advantages: (i) It ensures social justice. (ii) It ensures social security to everybody. (iii) All productive resources are used in a planned way.

3. Define a mixed economy. State its main features.
OR
"Mixed economies are a golden path of economic development." Give reasons in support of the statement.
Answer: Mixed economy is the one in which both private as well as public sectors co-exist. Production of most goods is left to the free play of the market forces. However, there are government controls as well as regulations with a view to maximising social welfare.
Main Features: (i) Co-existence of public and private sectors side by side. (ii) Economic planning is adopted to promote economic development. (iii) Price mechanism is allowed to function subject to certain regulations. (iv) The consumer does not enjoy complete sovereignty like capitalism.

OR

"Mixed economies are a golden path of economic development" because they combine the merits of both capitalism and socialism. It ensures proper allocation of resources, avoids business cycles, ensures economic stability, and balanced growth. It guarantees individual freedom and choice while checking the exploitation of the working class, thereby maximizing overall social welfare.

4. Discuss two merits and two demerits of capitalism.
Answer:
Merits: (i) It provides an incentive to hard work. (ii) There is economic freedom to both producers as well consumers.
Demerits: (i) It creates vast inequalities in the distribution of income and wealth. (ii) Price fluctuations are commonly seen.

5. Discuss the chief merits of socialism.
Answer: The chief merits of socialism are: (i) There is better and more rational allocation of resources. (ii) It does not permit exploitation of man by man. (iii) It can provide better distribution of income and wealth. (iv) There are no ups and downs in the economy. (v) All the regions of the country are taken care of. (vi) The government undertakes various social security measures. (vii) Socialism ensures rapid economic growth.

6. Distinguish between a capitalistic economy and a socialistic economy.
Answer:
1. Ownership: In capitalism, means of production are owned and managed by private people. In socialism, means of production are owned and managed by the Government.
2. Motive: Economic activities in capitalism are guided by self-interest and profit motive. In socialism, they are guided by the motive of social welfare.
3. Competition: There is free competition in all fields of production under capitalism. Under socialism, there is no competition since the Government is the only producer.

7. Distinguish between capitalist economy and mixed economy.
Answer:
1. Ownership: Under capitalism, means of production are owned by private people. Under a mixed economy, means of production are owned by the government as well as by private people.
2. Solution of Central Problems: In capitalism, all central problems are solved with the help of price mechanism. In a mixed economy, price mechanism and economic planning both are at work simultaneously.
3. Consumer's Sovereignty: Consumers are completely free to buy goods of their choice in capitalism. In a mixed economy, consumers' freedom is limited.

8. What is a developed economy? State its main features.
Answer: The economy of a country where per capita income and standard of living are high, is termed as developed economy.
Features of Developed Economy: (i) In a developed economy, the level of per capita income is very high. (ii) The standard of living of the people is high. (iii) Due to modern technology and skilled labour, natural resources are fully utilised.


QUESTION BANK

1. Define a capitalist economy.
OR
What is a market economy?
Answer: Capitalist economy refers to a market economy in which all decisions regarding what, how and for whom to produce are governed by the market forces of supply and demand. The government does not interfere in the process of decision making.

2. Define a socialist economy.
Answer: Socialist Economy is one wherein means of production are owned and controlled by the government.

3. What is a mixed economy?
Answer: Mixed economy is the one in which both private as well as public sectors co-exist. Production of most goods is left to the free play of the market forces. However, there are government controls as well as regulations with a view to maximising social welfare.

4. Explain any two features of a capitalist economy.
Answer: (i) All factors of production are owned by the individuals.
(ii) Profit motive is the primary motive of all economic activities.

5. Explain any two features of a socialist economy.
Answer: (i) All factors of production like land, capital (man made resources) and natural resources are owned by the state.
(ii) Social welfare is the primary motive of all economic activities.

6. State three merits and two demerits of a market economy (or a capitalist economy).
Answer:
(a) Three Merits :
(i) It provides an incentive to hard work.
(ii) There is economic freedom to both producers as well consumers.
(iii) Economy's resources are used in an efficient manner.
(b) Two Demerits:
(i) It creates vast inequalities in the distribution of income and wealth.
(ii) Price fluctuations are commonly seen.

7. State three merits and two demerits of a socialist economy.
Answer:
(a) Three Merits :
(i) It ensures social justice.
(ii) It ensures social security to everybody.
(iii) All productive resources are used in a planned way.
(b) Two Demerits:
(i) There is no incentive for hard work.
(ii) There is loss of freedom.

8. State three merits of mixed economy.
Answer:
Three Merits :
(i) It is a good compromise between capitalism and socialism.
(ii) It promotes healthy competition between public sector and private sector.
(iii) Balanced growth is possible.

9. Define an underdeveloped economy.
Answer: Underdeveloped economy is that economy in which people have low standard of living and per capita income is very low.

10. What is meant by a developed economy?
Answer: The economy of a country where per capita income and standard of living are high, is termed as developed economy.

11. State three features of an underdeveloped economy.
Answer:
Three main features of an underdeveloped economy.
(i) The level of per capita real income in the underdeveloped countries is very low, as majority of population are poor.
(ii) Agriculture is the main source of employment in rural areas. Agriculture is backward and productivity per hectare is also low.
(iii) Underdeveloped countries largely make use of old and outdated machinery and technology.

12. State three features of a developed economy.
Answer:
Features of Developed Economy.
(i) In a developed economy, the level of per capita income is very high.
(ii) The standard of living of the people is high.
(iii) Due to modern technology and skilled labour, natural resources are fully utilised.

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Quick Review Flashcards - Click to flip and test your knowledge!
Question
The way a nation organises the production, distribution, and consumption of goods and services is known as an _____.
Answer
economic system
Question
On what basis are economies classified into Capitalistic, Socialistic, and Mixed categories?
Answer
Ownership of the means of production.
Question
On what basis are economies classified into Developed, Underdeveloped, and Developing categories?
Answer
Nature of economic growth (or level of development).
Question
Which form of economic organisation features private ownership of means of production such as land and capital?
Answer
Capitalistic economy (or Capitalism).
Question
In a capitalist economy, economic activities are guided by self-interest and the _____.
Answer
profit motive
Question
Concept: Laissez-faire economy
Answer
Definition: An economy characterised by complete non-interference by the government in economic activities.
Question
Which historical event led to the emergence of the capitalist system in England between 1760 and 1820?
Answer
The Industrial Revolution.
Question
The right of an individual to acquire private property and pass it to their heirs is the system of _____.
Answer
inheritance
Question
How are prices of products and services determined in a capitalist economy?
Answer
Through the market mechanism (interaction of supply and demand).
Question
Who referred to the price mechanism as the 'invisible hand' which solves production and consumption problems?
Answer
Adam Smith
Question
In capitalism, the consumer is often referred to as a '_____' because their demand determines what is produced.
Answer
king
Question
How does competition under capitalism contribute to economic efficiency?
Answer
It ensures that only the most efficient firms survive and factors of production perform their best.
Question
What is the primary merit regarding resource utilisation in a capitalist economy?
Answer
Resources are used efficiently because every person works in their own interest.
Question
How does capitalism encourage technological progress?
Answer
Producers invest in research and development to invent new products and beat the competition.
Question
Why are low-cost, standard quality goods often available to consumers in a capitalist system?
Answer
Production is carried out on a large scale due to intense competition.
Question
What is a major demerit of capitalism regarding the distribution of wealth?
Answer
It leads to vast income inequalities where the rich become richer and the poor become poorer.
Question
The division of society into 'haves' and 'have-nots' in a capitalist system often leads to _____.
Answer
class conflict
Question
Why is there a fear of unemployment in advanced capitalist countries like the USA and UK?
Answer
It results from unplanned production and the possibility of over-production.
Question
How can capitalism lead to a wastage of resources?
Answer
Resources may be diverted to producing luxury goods (like cars and ACs) instead of necessities.
Question
The term for when regional and sectoral imbalances occur because only profitable areas are developed is _____.
Answer
unbalanced development
Question
Which economic system is defined by means of production being owned and managed by the state for the benefit of the whole society?
Answer
Socialism (or Socialist economy).
Question
What are the three crucial things emphasised by socialism?
Answer
State ownership of means of production, economic planning, and social welfare.
Question
Who is credited with making socialism popular through his book 'Das Capital'?
Answer
Karl Marx
Question
Which nation was the first in the world to establish a communist economy based on Marxian principles?
Answer
Soviet Russia (the Soviet Union).
Question
In a socialist economy, central problems like 'what to produce' are solved through _____.
Answer
economic planning
Question
Under socialism, inequalities of income are considered socially unjust and _____.
Answer
economically bad
Question
Why is there an absence of competition in a socialist economy?
Answer
The government is the only producer, which eliminates the scope for competition between units.
Question
How does socialism ensure 'social justice' regarding national income?
Answer
It aims for a just and equitable distribution of national income by reducing inequalities.
Question
Why does a socialist economy typically maintain economic stability without unemployment?
Answer
It is a planned economy, which prevents surpluses, shortfalls, and price fluctuations.
Question
What are two examples of social security measures provided by a socialist state?
Answer
Compensation for unemployment and maternity benefits (or old age pensions).
Question
What is a major demerit of socialism regarding the motivation of workers?
Answer
There is no incentive for hard work as people are made to work according to the dictates of the central authority.
Question
Concept: Red Tapism
Answer
Definition: Delays and wastage of time in decision-making caused by bureaucratic processes and excessive paperwork.
Question
In a socialist economy, the concentration of economic and political power in the hands of the government can lead to _____.
Answer
dictatorship (or authoritarianism)
Question
Is complete equality of income achievable in a socialist economy?
Answer
No, because skilled workers must receive higher wages than unskilled workers to provide incentives for work.
Question
Which economist propounded the concept of a mixed economy during the world depression of the 1930s?
Answer
J.M. Keynes
Question
Concept: Mixed economy
Answer
Definition: An economic system that combines aspects of both capitalism and socialism, allowing public and private sectors to co-exist.
Question
A mixed capitalist system is one where private entrepreneurs own means of production but the government interferes _____.
Answer
indirectly
Question
In a mixed economy, industries of national importance like defence and power generation are usually set up in the _____.
Answer
public sector
Question
The method of planning used in a mixed economy to provide incentives and disincentives to the private sector is 'planning by _____'.
Answer
inducement
Question
How does a mixed economy government protect consumers when open market prices are too high?
Answer
By imposing a price ceiling and using rationing through ration shops.
Question
What is a key merit of a mixed economy for less developed countries?
Answer
The public sector can provide large-scale investments in infrastructure that the private sector may avoid.
Question
Why is 'uncertainty' considered a demerit for the private sector in a mixed economy?
Answer
Private industries always fear nationalisation by the government.
Question
How does a mixed economy compare to socialism regarding the role of the consumer?
Answer
The consumer does not enjoy complete sovereignty as they do in capitalism.
Question
Economies that enjoy a high level of per capita income and a high standard of living are called _____.
Answer
developed economies
Question
According to the World Bank Report, countries with a per capita income of $12555$ or more are classified as _____.
Answer
developed countries
Question
Which two sectors typically dominate the national income and employment in a developed economy?
Answer
Industrial and service sectors.
Question
What is the status of resource exploitation in developed economies?
Answer
They achieve full exploitation of their available natural and human resources.
Question
How is the productivity of labour affected by technological advancement in developed countries?
Answer
It is very high because of the use of complex and advanced production techniques.
Question
An underdeveloped economy is one where the level of per capita income is _____ and people have a miserable living.
Answer
low
Question
According to the World Development Report 2021, underdeveloped economies have a per capita income of _____ or less.
Answer
$\$1145$
Question
What is the primary occupation for the majority of people in underdeveloped economies?
Answer
Agriculture.
Question
Why do underdeveloped countries suffer from high mortality rates despite having high birth rates?
Answer
It is due to widespread poverty, ignorance, and inadequate medical facilities.
Question
In underdeveloped countries, what percentage of the national population typically earns their living from agriculture?
Answer
Nearly $70$ to $85$ per cent.
Question
What is a common feature of income distribution in underdeveloped countries like India?
Answer
Widespread inequality where a large portion of national income accrues to a small section of society.
Question
What are two major causes of widespread unemployment in underdeveloped countries?
Answer
Rapid population growth and a low rate of economic development.
Question
Why is the productivity of labour very low in underdeveloped nations?
Answer
It is caused by a lack of availability of inputs, poor health, and lack of institutional infrastructure.
Question
Underdeveloped countries are often 'enriched' but fail to prosper because their natural and human resources remain _____.
Answer
under-utilised
Question
The World Bank classifies countries into four income groups: low, lower middle, upper middle, and _____.
Answer
high income
Question
As of July 2023, a country with a GNI per capita of more than $\$14005$ is placed in which World Bank group?
Answer
High income.
Question
Concept: Human Development Index (HDI)
Answer
Definition: A composite index constructed by the UNDP to measure human development based on longevity, knowledge, and standard of living.