Chapter 15 Economics and Government

I. Answer the following questions in detail.

Question 1.
Discuss any five features of the developing economy.
Answer:
World Development Report, 2004 categorizes countries having less than $735 per capital income as developing economy.
The features of the developing economy are as follows:
(i) Low per capita income: The per capita income in the developing countries is low. Their lesser national income gets divided by a larger population. As a result, the standard of living is poor.

(ii) Higher population growth rate: The population growth rate per annum is 2% or more in these countries. There is pressure of population on the natural resources such as land.

 (iii) Agrarian economy: The principal economic activity in these countries is agriculture. More than 60% of the total population is engaged in agriculture. The contribution of agriculture to the national income is about 26%.

(iv) Uneven distribution of income: There is concentration of wealth and income. 20% rich account for 40% of the national income. On the other hand, the poorest 20% account for about 10% of the national income. Disparity in income between the rural and urban areas is another indication of the uneven distribution of income.

(v) Unemployment: The ratio of unemployment is more than 3% of the entire labour force. There is seasonal unemployment and disguised unemployment in the rural areas. Industrial unemployment exists in the urban areas.

(vi) Poverty: About one-third of the population lives in dire poverty. They are unable to satisfy their basic needs of food, clothing, shelter, education and health.

(vii) Dual economy: In these countries, backward village economy and traditional society exists side by side with the modem urban economy.

(viii) Inadequate infrastructure: Means of transport and communication, education and health and banking facilities are inadequate. This hampers economic development.

(ix) Adverse balance of trade: These countries export agro products. Their income from exports is less than expenditure on imports. Due to adverse balance of trade their foreign debt goes on increasing.

Question 2.
Wants are unlimited. Explain.
Answer:
Human wants are unlimited and insatiable. On the other hand, the resources to fulfil these wants are limited/scarce. Owing to the scarcity of resources, it becomes necessary to determine priority to satisfy wants.

First priority is always given to satisfy the basic needs – necessities of food, clothing and shelter. Thereafter lesser wants in the form of comforts and luxuries are satisfied.

Question 3.
Discuss the limitations (disadvantages) of market system.
Answer:
Inspite of having many virtues, the capitalist/market system is imperfect. Some of its serious defects/ limitations/disadvantages are as follows:

1.                      Maximisation of profit is the main objective of the capitalist system. The industries focus on the production of luxury and comfort goods and reduce or neglect production of the essential goods.

2.                      The natural resources are over-utilised and wasted as there is no control of the government.

3.                      Consumers are exploited as they do not have adequate knowledge of market.

4.                      Concentration of wealth and income in the hands of a few rich increases disparity in income.

5.                      The capitalist class exploits the labour by paying low wages.

6.                      The possibility of monopoly is ever present.

7.                      Fluctuation in market leads to economic instability and such occurrences like collapse of market leads to worldwide depression.

Question 4.
Discuss the allocation of resources in mixed economy.
Answer:
There is co-existence of public sector and private sector in mixed economy. The central planning authority allocates resources to the public sector. There is private ownership in agriculture, trade, commerce, small and medium scale industries, consumer industries. Later, the private sector has entered transport arid communication.

The resources for these activities are raised by individuals or institutions. The public sector owns basic and heavy industries, defence industries, atomic energy, generation and supply of electricity. The funds for these activities are provided by the state as these activities are owned and managed by the public sector enterprises.

II. Answer the following questions as per requirement.

Question 1.
Explain land as a factor of production.
Answer:
In the conventional usage the term land indicates the upper layer/crust of the surface of earth. In economics, land is regarded as a natural factor of production. Besides agricultural land, it includes forests, mountains, rivers and other source of water on the surface of the earth; as well as mineral below the surface of earth. These resources are put to use for productive uses. Therefore, it is regarded as a natural resource for production.

Land is a free gift of nature. However, owing to its scarcity, it has become a ‘priced community’. Availability of land is limited and cannot be increased. Therefore, efficient use of land requires planning and technology.

Land is immobile factor of production. It cannot be shifted from one place to another. Fertility and usefulness of land differs from one place to another. Land in Rann of Kachchh is less fertile in comparison to Gangetic plains. However, the availability of mineral oil has made the deserts in West Asia very precious.

Question 2.
Write the limitations of the socialist system.
Answer:
The socialist system that has noble intentions of social welfare and classless society has the following limitations:

1.                      There is no motivation to increase production as there is state ownership of industries.

2.                      No need is felt for innovation and quality improvement as there is no competition.

3.                      There is total denial of economic freedom to the citizens.

4.                      There is fear of bureaucracy due to dictatorial nature of the state.

5.                      Every aspect of people’s life is regulated by the state.

Question 3.
Discuss the difference between economic growth and economic development.
Answer:
Difference between economic growth and economic development:
(i) On the basis of development process: Economic growth is a quantitative term, whereas economic development is a qualitative term. Economic growth merely indicates increase in the GDP, whereas economic development indicates increase in the GDP, per capital income and changes in the standard of living of the people.

(ii) Later and subsequent: Earlier economists did not make any distinction between these two terms. However, the qualitative aspect was indicated by the later economists by using the term economic development.

(iii) According to the changes taking place in economy: Increase in agricultural production by mere increase in the land under cultivation is economic growth. On the other hand, increase in agricultural production by application of scientific knowledge and technology such as hybrid seeds indicates economic development.

Question 4.
Describe the structure of the Indian economy.
Answer:
The economic activities in the Indian economy are divided into the following three sectors:
(i) Primary sector: It is the dominant sector of the Indian economy. It consists of agriculture and allied activities such as animal husbandry, fishery, poultry, forestry and mining. These activities make substantial contribution to the national income and generate maximum employment. The significance of the primary sector has gradually declined with economic development.

(ii) Secondary sector: It consists of the manufacturing activities, construction, supply of water, electricity and gas. Importance of secondary sector gradually increases with economic development.

(iii) Service sector: It includes trade and commerce, transport and communication, education and health, banking and insurance, tourism and entertainment. It is the fastest-growing sector of the Indian economy. It has surpassed the contribution of the primary and the secondary sectors to the national income.

Question 5.
Distinguish between Economic activities and Non-economic activities.
Answer:

Economics activities	Non-economic activities
An economic activity means earning (income) or spending money (expenditure). Money is used for exchange of goods (commodities) and services.	A non-economic activity is not under­taken to earn money.
Production of goods and services is undertaken to earn money.	Free of cost services are provided by the non-profit organisations to serve the society.
Activities undertaken by an industry a farmer, an artisan, educational institution, private hospital are some of the example of economic activities.	The selfless work of social workers, charitable hospitals, mother nurturing her child are some of the examples of non-economic activities.

III. Answer the following questions.

Question 1.
What is economic development?
Answer:
Economic Development: Every country aims to achieve development. When we talk about development, it is not restricted to only ‘economic development’. It also includes development of the society i.e. ‘social development’.

Economic development shows constant increase in National income of a country. It means:

1.                      Constant increase in national income of a country.

2.                      Increase in per capita income of a country.

3.                      Change in lifestyle of the people/ change in living standard of the people.

Question 2.
What are the factors of production? Name them.
Answer:
Land, labour, capital and entrepreneurship are the main factors of production.

Question 3.
What is the meaning of ‘economic activity’?
Answer:
Economic activity means any activity such as agriculture that involves earning or spending money for the exchange of goods (commodities) and services.

Question 4.
Which economic system has been followed by India?
Answer:
India, England and France have adopted mixed economy.

Question 5.
What do you mean by alternative uses of resources?
Answer:
Alternative uses of resources mean/ imply that a single resource can be used in more than one way, for example, electricity can be used for domestic purposes or industrial activities.

IV. Answer the following questions by choosing the correct alternatives.

Question 1.
Economically, India is which type of country?
(a) Developed
(b) Backward
(c) Developing
(d) Poor
Answer:
(c) Developing

Question 2.
According to World Bank Report, 2004, what is the minimum per capita income (in dollars) for a country to be called a developing country?
(a) $480
(b) $520
(c) $735
(d) $250
Answer:
(c) $735

Question 3.
Which system is called Free Economy?
(a) Socialist system
(b) Mixed Economy
(c) Market System
(d) None
Answer:
(b) Mixed Economy

Question 4.
Cattle rearing is included in which sector of economy?
(a) Secondary
(b) Primary
(c) Service Sector
(d) All of these
Answer:
(b) Primary

Additional Important Questions and Answers

I. Multiple Choice Questions (MCQs)

Question 1.
Which among the following change is visible in India after independence?
(a) Per capita income decreases.
(b) Consumption of commodities increase.
(c) National income decreases.
(d) Per capita income and commodity consumption increase.
Answer:
(d) Per capita income and commodity consumption increase.

Question 2.
Which among the following statements is not relevant to economic development?
(a) Increase in production in economy is called economic development.
(b) Increase in national income of developing countries is called economic development.
(c) Economic development is final stage.
(d) Economic development is a reason.
Answer:
(c) Economic development is final stage.

Question 3.
What is it called when national income of developing countries increase?
(a) Economic growth
(b) Economic income
(c) Economic development
(d) Economic production
Answer:
(c) Economic development

Question 4.
Which parameter separates developed and developing economy?
(a) National income
(b) Production
(c) Per capita income
(d) Economic development
Answer:
(c) Per capita income

Question 5.
Population growth rate is usually seen more than ……………. in developing countries.
(a) 0.5%
(b) 1%
(c) 1.5%
(d) 2%
Answer:
(d) 2%

Question 6.
Which type of inequality is usually observed in rural and urban areas?
(a) Production
(b) Income Distribution
(c) Distribution of means of income and production
(d) Tools
Answer:
(c) Distribution of means of income and production

Question 7.
Which among the following unemployment is not observed in developing countries?
(a) Seasonal unemployment
(b) Cyclic unemployment
(c) Disguised unemployment
(d) Industrial unemployment
Answer:
(b) Cyclic unemployment

Question 8.
How are the infrastructural facilities in developing countries?
(a) Development inducer
(b) Developed
(c) Non-developed
(d) Development obstructing
Answer:
(d) Development obstructing

Question 9.
Which activity cannot be included in economic activity?
(a) Farming
(b) Teaching
(c) Caring of child by mother
(d) Trade
Answer:
(c) Caring of child by mother

Question 10.
Which one is not included in professional structure?
(a) Primary sector
(b) Secondary Sector
(c) Political Sector
(d) Service Sector
Answer:
(c) Political Sector

II. Very Short Answer Type Questions

Question 1.
What is the total income of nation termed as?
Answer:
National income.

Question 2.
What do we get when national income is divided by the total population?
Answer:
Per capita income.

Question 3.
Which is the chief economic activity of developing countries?
Answer:
Agriculture.

Question 4.
In which nation is Mixed economy observed?
Answer:
Developing nations.

Question 5.
In how many sectors are the occupations divided in developing countries?
Answer:
Three.

Question 6.
In which sector is the cattle rearing included?
Answer:
Primary.

Question 7.
What is the main aim of market system?
Answer:
Profit.

Question 8.
In which system do the public and private sector co-exist?
Answer:
Mixed economy.

Question 9.
Who holds the central place in decision making in mixed economy?
Answer:
Economic planning.

Question 10.
Which economic system is adopted in India?
Answer:
Mixed economy.

III. Short Answer Type Questions

Question 1.
Which indicators are included in economic development?
Answer:
Economic development consists of following three indicators:

1.                      National income: The total income of the country is called its national income.

2.                      Per capita income: It is the division of national income by total population of the country.

3.                      Standard of living: It includes the availability of nutritious food, clothes, proper shelter, education, health services, transportation services, etc. to people.

Question 2.
How can we say that economic development is taking place in India?
Answer:
After Independence national income and .per capita income started increasing. There has also been improvement in various services and facilities such as food grains, pure drinking water, education, transport and communication facilities, housing, sanitation, etc.

These improvements suggest that the standard of living of people has improved. Since there is a rise in all the three parameters necessary for economic development we can say that economic development is taking place in India.

Question 3.
Differentiate between economic growth and economic development.

Economics growth	Economic development
It can take place faster.	It is a long term process.
In his quantitative change occurs.	In his quantitative and qualitative change take place
The Concept of growth is narrow.	The Concept of development is broad.

Question 4.
Between growth and development which one is difficult to measure? Why?
Answer:
Development is more difficult to measure compared to growth. Growth refers to quantitative change. It is always easy to measure quantitative respects. Growth is measured by the means of statistical numbers and indicators such as per capita income, national income, etc.

Development is more of a qualitative aspect. It covers areas like how far the living standard of people has improved and how far the health of people is improved. It is quite difficult and lengthy process to measure such aspects.

Question 5.
Why is India considered a developing nation?
Answer:
Whether the economy of a country is developed or developing can be decided on the basis of the per capita income of the country.

As per World Bank’s world development report of 2004, countries having per capita income less than $ 735 are categorized as developing economies or countries. India’s per capita income is lesser than this and hence, it is developing country.

Question 6.
Judicial use of resources is a problem haunting each and every nation. Give reason.
Answer:
Human wants are unlimited whereas resources to fulfil them are limited. This rule applies for each and every nation of the world. None of the countries of the world have unlimited resources. Limited resources and unlimited wants to use these resources will always create scarcity of these resources.

Every country faces problems such as shortage of agricultural land, minerals, water and forest resources, skilled and trained labourers, etc. Such problems haunt every nation as to how the resources should be allocated among various production activities, so that optimal use of resources can be made. Hence, resources should be used judiciously so that future generations can also enjoy them.

Question 7.
Alternative usages of production resources create problem of selection. Give reason.
Answer:
Generally, all the resources are limited and possess more than one alternate usage. At times, there arises a situation where the user has to opt for the most beneficial use of the available resource. For example, a person having a piece of land can use it for farming, making school, hospital, etc. But, since he has only one piece of land, he has to decide how to utilize this resource, so as to get maximum benefit. As a result, there arises the problem of selection.

Question 8.
Why does a country need to develop or adopt a system of allocation of resources?
Answer:
Irrespective of the nation, the resources it will have will always be less compared to the demand of its people. Under this situation, every nation tries to attain speedy economic development by making limited and best use of its resources. To do so the country follows specific political system in the country. Through this political system, it aims to allocate the resources in best possible manner.

Mainly there are two methods that a country adopts for allocating the resources. They are:
(a) Market Mechanism and
(b) Social System.
Both these systems are opposite to each other. However, many countries have mixed these two systems and have developed several other methods of allocating the resources. ‘Mixed Economy’ is one such method. India follows mixed economy system of allocating resources.

Question 9.
State the features of market mechanism system.
Answer:
Features of market mechanism system:

1.                      Resources of production are owned privately or by individuals.

2.                      Profit is at the centre of economic activities in market system.

3.                      Consumers get wide variety of product choices.

4.                      Government does not interfere in this system.

5.                      Resources are distributed on the basis of profit.

6.                      Economic decisions are taken keeping price mechanism in mind.

Question 10.
State the advantages of market mechanism system.
Answer:
Benefits of market mechanism system:

1.                      It protects individual freedom.

2.                      Resources of production are utilized to the greatest extent and efficiency.

3.                      Production can be done abundantly.

4.                      It continuously encourages new researches. As a result, economic development becomes faster.

5.                      Quality of goods and services improved because of competition.

Question 11.
Why is Market Mechanism also known as the Capitalist Method? Which aspects are included in capital?
Answer:
Capital is factor in the market mechanism system. Hence, market mechanism is also known as the Capitalist Method. Capital includes things like raw material, electricity, petroleum, products, chemical fertilizers, machinery, tools etc. It also includes human wealth, scientists and researchers from different disciplines.

Question 12.
Economic independence is maintained in market mechanism system. Give reason.
Answer:
In market mechanism system, there is no interference from anybody and hence the entrepreneur. There is very less wastage of resources in this system. Entrepreneurs can innovate and invent new products. Moreover, the producers are free to distribute their products the way they want. Thus, because of the freedom one enjoys in respect to production and distribution. In this system, we can say that economic independence is maintained in market economic system. Mixed economy works as the middle way to adopt good points and ignore bad points of both market system and socialist system.

Question 13.
Motivations and punishment are the two balancing wheels of the socialist system. Give reason.
Answer:
In this socialist system, labourers are paid according to their ability and needs. Labourers are encouraged to do more work by increasing their salary, giving them bonus, financial rewards and awards. All these incentives work ownership of business units. Mixed economy is free from any major interference of the state. However, due to as motivation for the labourers. At the same time, if a labourer does not work properly, he is even punished.

Punishments like removing from job or transferring the labourer to far-off places are given. Thus, motivations and punishment are the two wheels of the socialist system which balance this system and keep it rolling.

Question 14.
Give difference between Market/Capitalist System and Socialist System
Answer:

Market/Capitalist System	Socialist System
The ownership and distribution of resources is owned by private owners.	The ownership and distribution of resources is owned by government.
The owners decide prices for their products through price mechanism.	The government decides prices of the products on its own.
There is complete economic freedom in this system.	There is no scope for economic freedom.
Profit is the main objective.	Social welfare is the main objective.

Question 15.
State differences between private sector and public sector.
Answer:

Private Sector	Public Sector
It is a part of market economy which is made up of individuals, companies and organizations that are owned privately.	Public sector is a part of market economy which is made up of which is made up of organizations and enterprises that are either owned by the either owned by the government or government has same share in it.
Its main aim is to earn profit.	Its main aim is to benefit the people.
Examples – Vadilal ice cream, Tata Telecom, etc.	Examples – Indian Railways, Life Insurance Corporation (LIC), etc.

Question 16.
There is no scope of economic freedom in socialist system. Give reason.
Answer:
In a socialist system, all the economic decisions are taken by the state i.e. government. The state owns all the resources of production. The government governs the factories, sets in production target and also sets the prices of goods and services produced. State takes decisions keeping social welfare in mind. As a result, there is no scope of economic freedom in socialist system.

Question 17.
Write a short note on benefits of mixed economy.
Answer:
Mixed economy works as the middle way to adopt good points and ignore bad points of both market system and socialist system. The public and private sector, together enjoy decision making, management and ownership of business units.

Mixed economy is free from any major interference of the state. However, due to government’s intervention in various important sectors, the evil of monopoly, high profiteering, adulteration and duplication are controlled. Economic planning is always in the centre in the process of economic decision in the mixed economy. Social welfare increases in mixed economy.

IV. Long Answer Type Questions

Question 1.
The ultimate objective of a country should be economic development not growth. Give reason.
Answer:
Economic growth focuses on national income and per capita income. Increases in national income and per capita income do not tell whether the facilities in the country and hence, the standard of living of people have improved or not. Facilities such as education, etc. are very important parameters that determine the standard of living of people.

If there is no improvement in these parameters then the quality of life of people will not improve irrespective of the income they or the nation earns. Economic development focuses on per capita income, national income and also standard of living. Since, it is extremely important to see that the standard of living of people has also improved the country should aim at , economic development rather than just economic growth.

Question 2.
How can you classify the economic activities of a nation? Explain each classification briefly.
Answer:
The economic activities of a nation can be mainly classified into three sections or parts. They are

1.                      Primary Sector;

2.                      Secondary Sector, and

3.                      Service Sector.

(1) Primary Sector: It includes agriculture and agriculture related activities such as cattle rearing-, cattle breeding, fishing, poultry farm, collection of forest products, mining of raw metal, etc.

(2) Secondary Sector: In general, this sector is also called ‘industry’. It (Industry) includes small and large scale industries, factories, construction, electricity production and supply, gas and water supply, etc. Thus, secondary sector or “Industry’ includes production of each and every item right from small pin to gigantic machines.

(3) Service Sector: As the name suggests this sector includes all the services. Services like trade, communication, airways, waterways, education, health, banking and insurance, tourism and entertainment, etc. are included in this sector.

Question 3.
Explain the different factors of production.
Answer:
The main types of factors of production are discussed below:
(i) Land: With respect to economics, land’ means different types of natural resources. The natural resources include forests, rivers, mountains, minerals present in the interior of the earth, metals, etc.

(ii) Capital: It is a man-made resource. Producing goods and services would require using certain equipment, tools, office or other production space, etc. All these form part of capital. Thus, capital as a factor of production includes property, investments, assets such as machinery furniture, vehicles, etc.

(iii) Labour: The mental or physical work done by a person with the aim to obtain monetary gain is called labour. Labour is a ‘living’ factor of production. Work done by farm labours, workers, teachers, doctors, artisans, etc. is called labour.

(iv) Entrepreneurship: The person who efficiently combines the three factors of production i.e. land, capital and labour is called entrepreneur.

Question 4.
Discuss the problems faced by the world with respect to distribution of resources.
Answer:
Problems faced with respect to distribution of resources are as follows:
(i) Unlimited wants: Human, wants are unlimited. One “want’ gives rise to another. Several ‘wants’ are to be filled repeatedly. For example, want of water, food, etc. Development of science and technology gives rise to several wants. To fulfil these wants again more resources are needed. For example, invention of car has increased the want of a car. To fulfil this want resources such as metal, rubber, etc. are needed.

(ii) Important order in terms of necessities: Since the resources are limited and wants are unlimited, a person has to select to which want should the person should give more importance. A person has to satisfy his requirements as per his priority. For example, for a student money to be spent on school bag and books is more important than buying a mobile phone.

(iii) Limited resources: Factors of production are either natural or man-made. Both these are limited. Hence, one needs to utilize both these factors judiciously. Distribution of resources should be done keeping the most important wants at the centre.

(iv) Alternative use of resource: There are two aspects of the resources, one that they are limited and second they have alternate use. When any tool of production can be utilized in more than one way, it means that the tool has multiple usages. This also means the tool has an alternative usage too.

For example, if wheat is sown in a land, then bajra, maize, groundnut or any other crop cannot be cultivated on the same land at the same time. This means that to make one use of the land as resource, we have to forgo its other use. Hence, it should be decided that which usage will give the optimal benefit so that resources are not wasted.

Conclusion: The resources are limited whereas the wants are unlimited. Hence, the country or even an individual needs to decide the priority of his wants an make use of resources accordingly.

Question 5.
Explain in detail market system.
Answer:
A market economy or system is an economic system in which economic decisions and the pricing of goods and services are guided solely by the interactions of a country’s individual citizens and businesses. Market system is also called capitalist system. The government hardly intervenes in this system. It does not make any specific economic policies for this system. Competition plays an important role in market system. Owing to the competitive market; the owner of production house has to increase working capacity to the greatest extent in order to obtain maximum profit.

The resources are allocated on the basis of the scope of profit. Production and activities related to production lie at the centre of market system. So, people invest in those industries where they find more scope of profit. Market is completely free in this system. This method has encouraged researchers to establish several new methods of production. As a result, production increases to the maximum level. This leads to very fast economic development.

Conclusion: In market system, competition controls the whole market like on “invisible hand’. The state i.e. government does not interfere in this system and so it is known as ‘Free economy’. Countries like America, Japan, England etc. follow market system.

Question 6.
Write a detailed note on socialist system.
Answer:
The system in which economic system is controlled and regulated by the government, so as to ensure welfare and equal opportunity to the people in a society is called socialist system. This system is opposite to the market system. In the socialist system, all economic decisions are taken by the State i.e. the government. The state owns all the resources of production. Keeping in mind the need of the society, the government decides how much to produce, how much to invest in which sector, resource distribution, production distribution, etc.

In the socialist system ‘social welfare’ rather than ‘profit’ is the centre. The government governs the factories, sets the production target and also . sets the prices of good and services produced. Farming is also owned by the state. Government makes payment to farm labourers on the basis of their ability. It should be well noted that socialist system originated because of limitations and failures of market system. Countries like Russia and China have achieved fast economic progress by adopting this system.

Features of Socialist System:

1.                      Resources are owned by the state i.e. government.

2.                      All the economic decisions are taken by the state.

3.                      Social welfare and not profit is at the centre of economic activities.

4.                      Labourers are paid wages in return of work they do in government managed factories.

Benefits of Socialist System:

1.                      Production is done on the basis of to the needs of the society. Hence, resources are not wasted in producing unimportant and luxurious things.

2.                      Resources do not get wasted.

3.                      Disparity of income and property is removed.

4.                      Consumers do not get exploited. Limitations of Socialist System:

5.                      The government owns the resources of production. Hence, people do not get encouragement and motivation to increase production.

6.                      There is no competition. So, new research does not take place much in the economy.

7.                      There is lack of individual freedom in this system.

8.                      There is a total control of the state. This creates the fear of bureaucracy.

Question 7.
Write a note on mixed economy.
Answer:
The economic system in which both government and private individuals exercise economic control is called mixed economy. Mixed economy is a middle way of market system and socialist system. Mixed economic system attempts at removing the limitations of market system and socialist system and at the same time try to adopt goods elements of both the systems.

In mixed economy, public and private sector co-exit. Both private and public sectors work as complementary to each other rather than competitor of each other. Private ownership – exists in sectors like agriculture, trade, small consumer goods industry, etc. whereas the basic i.e. key industries like heavy industries, factories, factories producing defence material, railway, electricity, roads, irrigation, etc. are owned by the state i.e. government.

In this system market is not completely free. Government puts several controls. For example, state puts heavy taxes on production of unwanted things such as cigarettes. Similarly to attain balanced regional development government gives certain concessions to private owners for establishing industries in backward areas. These concessions could be subsidies, reduced or no taxes, cheap land, etc.

Thus, mixed economy is such an economic system in which economic planning is given a very important position for taking economic decisions. Since mixed economic system puts various controls and restrictions it is also called ‘Controlled Economic System’. Countries like India, France and England follow mixed economy. Limitations of mixed economy: Economic instability, lack of coordination, re-consistent economic policy, low rate of growth of economic development, etc. are certain limitations of mixed economy.

Question 8.
There is a co-ordination of restrictions and motivations in mixed economy. Explain.
Answer:
Mixed economy neither gives full freedom to producers nor does it keep full control over them. In a mixed economy, the entrepreneur is free to decide what to produce, how to produce, where to distribute, etc. Due to these freedoms, he is motivated to produce goods of his own choice and with best features. Thus, he can provide society with better products as per the needs. On the other hand, the government involves itself in the market to see that goods are produced with appropriate quality standards so that the customers are not exploited.

The government takes steps to control evil of monopoly, public distribution system and helps people buy unadulterated goods. Moreover, government also restricts the producers from producing certain types of goods which are harmful for the social welfare. Thus, the mixed economy runs with co-ordination of restrictions and motivations.

V. Fill in the blanks

1. Economic development is ……………… and economic growth is ………………
2. More than 60% people in India depend on ……………..
3. Developing nations observe …………….. form of economy.
4. Cattle rearing is included in ……………….. sector.
5. ………………. sector dominates in developing nations.
Answer:
1. qualitative; quantitative
2. agriculture,
3. dual
4. primary
5. Primary

VI. Identify me

1. When I remain low, it causes lower liuing standard.
2. I am a chief economic activity in developing nations.
3. I am a peculiar feature of developing nations.
4. The micro needles to macro machines are manufactured in my sector.
5. I am considered as a living source of production.
Answer:
1. Per capita income
2. Agriculture
3. Unemployment
4. Secondary
5. Labour