Net National Product (NNP)

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NNP  Net National Product (NNP)  Net National Product (NNP) of an economy is the GNP after deducting the loss due to ‘depreciation’. The formula to derive it may be written like this: NNP = GNP – Depreciation or, NNP = GDP + Income from Abroad – Depreciation. The different uses of the concept of NNP are as given below: (i) This is the ‘National Income’ (NI) of an economy. Though, the GDP, NDP, and GNP, all are ‘national income’ they are not written with capitalized ‘N’ and ‘I’. (ii) This is the purest form of the income of a nation. (iii) When we divide NNP by the total population of a nation we get the ‘per capita income’ (PCI) of that nation, i.e., ‘income per head per year’. A very basic point should be noted here that this is the point where the rates of depreciation followed by different nations make a difference. Higher the rates of depreciation lower the PCI of the nation (whatever be the reason for it logical or artificial as in the case of depreciation being used as a...
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What is an Economic System?

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 What is an Economic System?

Human life depends on uses of certain things (goods and services) some of which, up to a level, are also essential (such as food, water, shelter, cloth, etc.) for survival. How to let people have these things was the first challenge for the humanity . This challenge has two dimensions of it- firstly, these things need to be created (produced) and secondly, they should reach (distributed/supplied to) the needy people. For production one needs to set up productive assets for which money needs to be spent (known as investment). But ‘who’ will invest and ‘why’? In the process of taking on this challenge there evolved different types of economic systems (i.e., different ways of organising an economy). 


Economic systems can be categorized into four main types: traditional economies, command economies, mixed economies, and market economies.

1. Traditional economic system

The traditional economic system is based on goods, services, and work, all of which follow certain established trends. It relies a lot on people, and there is very little division of labor or specialization. In essence, the traditional economy is very basic and the most ancient of the four types.

Some parts of the world still function with a traditional economic system. It is commonly found in rural settings in second and third world nations, where economic activities are predominantly farming or other traditional income-generating activities.

There are usually very few resources to share in communities with traditional economic systems. Either few resources occur naturally in the region or access to them is restricted in some way. Thus, the traditional system, unlike the other three, lacks the potential to generate a surplus. Nevertheless, precisely because of its primitive nature, the traditional economic system is highly sustainable. In addition, due to its small output, there is very little wastage compared to the other three systems.

2. Command economic system

In a command system, there is a dominant centralized authority – usually the government – that controls a significant portion of the economic structure. Also known as a planned system, the command economic system is common in communist societies since production decisions are the preserve of the government.

If an economy enjoys access to many resources, chances are that it may lean towards a command economic structure. In such a case, the government comes in and exercises control over the resources. Ideally, centralized control covers valuable resources such as gold or oil. The people regulate other less important sectors of the economy, such as agriculture.

In theory, the command system works very well as long as the central authority exercises control with the general population’s best interests in mind. However, that rarely seems to be the case. Command economies are rigid compared to other systems. They react slowly to change because power is centralized. That makes them vulnerable to economic crises or emergencies, as they cannot quickly adjust to changing conditions.

3. Market economic system

A market economy is an economy where most resources are owned and controlled by individuals and are allocated through voluntary market transactions governed by the interaction of supply and demand.

People exchange resources, such as money, for other resources, such as goods or services, on a voluntary basis in the market. The value of the resources exchanged is based upon how scarce each resource is and how many people want the resource. If the supply of a resource is low, but the demand is high, the price will tend to be high. If the demand is low and the supply high, the price will tend to be low.

Economic growth and development in a market economy is determined by the relative risks and rewards (or profits) that particular economic activity presents to individuals. If risks are too high and rewards are too low, then certain activities probably will not be pursued.

4. Mixed economy

Mixed systems have characteristics of both the command and the market economic system. For this purpose, the mixed economic systems are also known as dual economic systems. However, there is no sincere method to determine a mixed system. Sometimes, the word represents a market system beneath the strict administrative control in certain sections of the economy.


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