ECONOMY AND CENTRAL PROBLEMS OF ECONOMY
In this conversation Mr. Rajesh(Father of Rahul) is entered.Rajesh is a professional chef in Hotel Ashoka. Its Sunday and he is at home. Rahul’s mother (Sneha) wants Rahul’s father to cook food at home.
Mother: Dear husband, You cook delicious food for others. Sometimes we also want to taste the magic of your hands.
Father: But you know that whole week, I cook food only. Never mind. Today I will prepare a new dish for you and Rahul.
Raju: Oh Wow Dad! What is the name of that dish?
Father: Broccoli, Baby Corn and Colourful Pasta Salad.
Do you know what is price of this dish in Hotel Ashoka it is Available at Rs.2000 rupees.
Mother: Don’t worry Raju we are not going to pay anything to your dad for this.
Father: Yes, because I love you my sweet son.
Raju: So father you get money when you cook at your job but you will not get money when you cook for your family at home.
Father: Yes Raju, In Hotel I do job for money thus all of my efforts at job are of economic nature. Thus that activity is done to earn money therefore that is an economic activity.
Raju: Okay. Accordingly activity done by you at home is not for earning money. Therefore it becomes Non-Economic Activity. Right?
Father: You are absolutely Right, My Son. In whole of our country economic as well as Non-economic activities are done. And the state or a country in which these activities take place is called an economy.
Raju: Do you mean India is an economy?
Father: Yes my son. Every country is an economy.
Raju: So Dad, I was just thinking about Hotel Ashoka…
Raju: I was thinking that,
- Owners of Hotel Ashoka spent money for making the Hotel and are bearing expenses of running the hotel,
- They provide hotel services (Providing rooms on rent and food at their restaurant) to their customer
- Their customers pay money to them for getting these goods and services and
- Each and everybody working for Hotel Ashoka get remuneration for services
Father: Hahaha… My dear son, you do not know but by saying this you have actually explained what happens in an economy.
Raju: What ??
Father: Yes. Actually you have the meaning of economy. You have mentioned all the 4 economic activities. Point no. (i) Investment (ii) Production (of goods and services) (iii) Consumption and (iv) Distribution (of income)
Raju: That means, Any country where economic activities like Investment, production, consumption and Distribution take place is known as economy.
Raju: You know dad, I am so lucky that you and mom both agree to each other and you listen to her and she also does what you say. (Mixed Economy)
But Sunny, my friend, says that his father does not listen to anyone at home. Everyone has to do what he says. (Centrally planned Economy)
And Exactly opposite is the case at my friend, Meena’s home. Her father does not object or interfere on anything and whatever everybody at home wants, they do. (Free Economy)
Father: Yes son, Every home has its own set of requirements and circumstances therefore system at every home may be different.
(1) ECONOMIC ACTIVITIES
- Economic activities are those activities which are undertaken by a man to earn income, money and wealth for his life.
- These activities include investment, production, distribution and consumption of goods and services at all levels within the society.
- The country where these economic activities are undertaken is called an economy.
- g. Worker works in the factory and get wages.
(2) TYPES OF ECONOMY
Centrally planned economy
- It is the economic system where all the decisions are made by the government and not by the interaction between consumers and business.
- Market Economy is free economy in which central problems are solved by the market forces of demand and supply.
- Mixed Economy=Planned Economy + Market Economy.
- Central problems are not only taken on the basis of social considerations but also on the basis of social considerations E.g. India/US are some of the examples of Mixed economy
- It is also known as dual economy.
- Private Firms
- Factorial distribution of income
- The choice oftechnique
- The choice of product
- None of these
- Centrally planned economy
- Mixed Economy
- Market/Free economy
- Both (a) and (b)