Economy

An economy is rather loosely defined term for any broad collection of interrelated
productive activities. It may refer to productive activity in a region of one country, such
as the economy of Pakistan.
A typical economy consists of thousands and thousands of markets. There are markets
for wheat, steel, cement, coal, oil, services and the myriad other goods and services that
are found in a modern economy. Each is produced and sold in its own individual market.

Sectors of an Economy

Markets are often conceptually aggregated into various groups called sectors. Each of
these is an aggregation of the individual markets contained within it. Two of the most
common types of aggregation are used to distinguish: various physical types of
production and the public and private sectors

Types of Production
It is often useful to aggregate the production that passes through the nation s markets into
various types. One broad classification divides primary, secondary, and tertiary. Primary
consist of all economic activity that is a first step in the productive process; i.e. the
harvesting of the agricultural crops. Secondary production is concerned with later stages
in the production of finished goods. It comprises all of manufacturing and constructions.
The tertiary sector covers the production of all services, such as transport, finance and
professions

The Public and private Sectors

The productivity activity of a country is often aggregated in a different way to obtain the
private and the public sectors. The private sectors refer to all production that is in private
hands; the public sector refers to all the production that is in public hands.

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 Economic systems

An economic system is a mechanism which deals with the production, distribution and
consumption of goods and services in a particular society.

The following are the most common and general economic systems that are:

1) Market Economy (Capitalism Economy)

2) Planned Economy (Socialism Economy)
3) Mixed Economy

Economic System of Pakistan

Pakistan operates in Mixed economy. It is neither pure capitalism nor pure socialism but
a mixture of the two. In mixed economy, we find the characteristics both of capitalism
and socialism.
To understand the operation of the mixed economy, we must first recognize that
every economy must respond to four fundamental questions.

What goods and services will be produced?

How will the goods and services be produced?
How will get the goods and services?
How will the system accommodate change?

These questions are relevant because of scarce resources in a world of unlimited wants.
Let examine how the mixed economy answers each of these questions.

What will be produced?

With product and resources prices in place, established through competition in both the
product and the resource markets, how will a mixed system decide on the specific types
and quantities of goods to be produced? Because businesses seek profits and avoid losses,
the goods and services produced at a continuing profit will be produced and those
produced at a continuing loss will not. Profits and losses depend on the difference
between the total revenue a firm receives from selling its product and the total cost of
producing the product:
Economic profit = total revenue total cost
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 How will the goods and services be produced?
The mixed system steers recourses to the industries whose products consumer want
simply because those industries survives , are profitable, and pay for resources. With each
industry, the firms that survive to do the producing also are the ones that are profitable.
Because competition weeds out high- cost producers, continued profitability requires that
firms produce their output at minimum cost.

How will get the goods and services?

Generally, any product will be distributed to consumers on the basis of their ability and
willingness to pay its existing market price.

How will the system accommodate change?

Mixed systems are dynamic: consumer preferences, technology, and supply of resources
all change. This means that the particular allocation of resources that is now the most
efficient for a specific pattern of consumer tastes, range of technological alternatives will
become obsolete and inefficient as consumer preference change, new techniques of
production are discovered, and resource supplies change over time.

Means of Mixed economy

In a mixed economy, the means of production or productive capital is owned by private

entrepreneurs. But the government directly controls and regulates the working of the
economy through its monetary and fiscal policies. For example, it institutes price control,
licensing system, import control, exchange control, control over capital issues, etc. The
government does not take over the ownership of the means of production to undertake
production itself. Even if it undertakes production directly, it is comparatively very little
as compared with the volume of production under the control of private entrepreneurs.

It has also been realized that in under developed countries like Pakistan,
economic development cannot be achieved at the desired rate of growth. Hence
the government in such countries actively participates in economic activities in
order to minimize the evils of unadulterated capitalism and to accelerate
economic growth.
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 Foundation of Mixed Economy in Pakistan

In the Pakistan economy, both the public sector and private sector are in operation. The
foundation of mixed economy in Pakistan was laid in 1948. According to which various
industries were divided between two sectors, viz, the private sector and the public sector.
The responsibility for the development of several basic, heavy and strategic industries
was assigned to the state and the development of the rest of the industries was left to the
private sector. Labour is paid compensation for accidents while at work. The government
also takes necessary steps to prevent industrial disputes

Outstanding Features and Function of Pakistan Economy

Having understood the meaning of mixed economy, we are now in a position to bring out
the main features of Pakistan economy. The following are the main characteristics of a
Pakistan economy:

1) Co- existence of the public and private sectors

The chief characteristic of a Pakistan economy is that in Pakistan economy both public
sector and the private sector function together. They co-exist. The industries of the
country are divided into two parts. In one part are the industries the responsibility for the
development of which is entrusted to the state and they are owned and managed by the
state. Other industries are left under the authority and control of the private entrepreneurs.
The private sector is free to develop them and start new enterprises in this sector.
Generally, the basic industries, the industries concerned with the production of defense
equipment, atomic energy, engineering industries, etc are put in the public sector like
Karachi steel mills, Heavy complex texala . On the other hand, consumers goods
industries, small and cottage industries, agriculture, etc, are generally given to the private
sector. On the contrary, the government helps and encourages the private sector by
providing them several incentives like Freight subsidy scheme and facilities like
Research and development support for the Textile sector so that the industries in the
private sector are able to develop properly and make the country s economy efficient and
strong

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 2) Role of Price system and government
Another characteristic of Pakistan economy is that it is operated both by the price system
and the government directives. So far as the public sector is concerned economic decision
relating to production, prices and investment are made by the government or authorities
appointed by the government. But the private sector in Pakistan economy is operated by
price mechanism. It is clear that in Pakistan economy the allocation of productive
resources is partly determined by the price system and partly by the government
directives.

3) Government Regulation and control of Private sector

In Pakistan economy the government adopts necessary measures to regulate and
influence the private sector, so that it may function in the interest of the nation rather than
exclusively in the interest of the private sector. For this purpose government of Pakistan
introduces licensing system according to which government approval or license is
essential for setting up a factory. If the government considers that in a certain industry
already there is excessive investment, no new licensing are issued for setting up factories
in that industry. The government also controls and regulates the private sector through
appropriate monetary and fiscal policies. For this purpose, the government of Pakistan
gives rebates and tax concessions and credit facilities at low and reasonable rates so that
the private sectors are induced to invest in those industrial lines.

4) Consumer s sovereignty protected

In Pakistan economy the sovereignty of the consumers is protected. The consumers are
free to buy commodities of their choice and private sector produce commodities
according to consumers demands, although the government can control their prices in
public interest so that they can be prevented from rising unduly high. In fact, the aim of
price control is to protect the consumers from exploitation by private producers and
capitalists. It is clear that in spite of some restrictions imposed by the government, the
consumers are free to purchase the goods they like. It is their demand or preferences
which guide production in the private sector.

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 5) Government protection of Labour
In our economy government protect the weaker sections of society especially labour. That
is, it saves labour from exploitation by the capitalists. Social conscience was aroused on
seeing the pitiful and miserable working and living conditions of such labour. The
government realized its responsibilities for protecting labour from exploitation buy
factories owners. Now several factory acts have been passed to regulate the working
conditions of labour. Minimum wages and the working hours have been fixed.
Restrictions have been imposed on the employment of small children in factories

6) Reduction OF Economic Inequalities

The government of Pakistan takes necessary steps for the reduction of inequalities of
income and wealth. Extreme inequalities of income and wealth are socially unjust,
politically undesirable and economically harmful. Extreme inequalities of income reduce
social welfare. Due to extreme inequality of income in Pakistan create class distinctions
and generate class conflict which the whole society into two warring camps- the rich and
the poor or the Haves and the Haves-nots. Present government try to reduce
economic inequalities for promoting justice, and social stability and social welfare,
increasing production and for providing equal opportunities for all. For this purpose,
government levies progressive taxation, wealth tax etc. On the other hand free education
scheme like Hamara Khawab Parha Likha Punjab, free education, free medical
aid are some of the remedies adopted for distributing the extra income of the rich among
the poor.

7) Control over Monopoly

The government of Pakistan tries to control and regulate monopolies. A charge against
monopolies is that they reduce output and raise prices in order to get maximum profit.
The monopolist thus uses his monopoly power to exploit the consumers. Moreover,
monopoly creates unemployment by reducing output and thus hampers-industrial
development.

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 The government tries to control and regulate monopolies in order to remove the above
evils and make them function in public interest. It appoints an ad hoc or permanent
commission to fix a fair price of the monopolized products. Only a reasonable return is
permitted on investments made by monopolists. In other words, a monopolist can earn
only a fixed rate of dividend. Also, when the government considers it necessary in public
interest, it takes over monopolies and operates them in public interest.

Conclusion
In Pakistan economy public and private sector operate side by side. In the public sector,
the development of industries is directly under the government: hence it is possible to
make sure their operation according to plan and with proper organization. In the private
sector, however there is need for some controls and incentives so that they are also
developed according to plan, e.g. price controls, influencing them by means of proper
monetary and control over capital issues, control over imports, prevention of
concentration of economic power and creation of monopolies. The fact is that the public
and the private sector are the two necessary limbs of the economy and both must be in
good health and functioning properly. There should be cordial cooperation between the
two.