Socialism has greater economic efficiency than in capitalism. The means of production are controlled and regulated by the central planning authority towards chosen ends. Economic efficiency is attained by utilising resources in producing socially useful goods and services which satisfy the basic wants of the people. It gives greater welfare due to less inequality of income. Monopolistic practices are absent in this type of economy. The business fluctuations are also not present and hence there is no problem of unemployment or depression.

Socialist economy has also certain disadvantages such as Loss of consumer’s sovereignty in choosing their products. They can purchase those commodities which are available in the departmental stores. There is no freedom of occupation and that they cannot leave it or change it. Arbitrary allocation of resources is prevailed in socialism and central planning power commits fault in allocation of resources. Socialism is more of bureaucratic and is operated like machinery. It does not provide necessary initiative to the people to work hard.

It is a combination of both capitalist and socialist economies. There is a mixture of private and public mechanism and economic planning. Few decisions are taken by the households and firms ad few others by the planning power.

Mixed economy incorporates best allocation of resources since it features both capitalism and socialism. The price mechanism, the profit motive and the liberty of production and consumption lead to the efficient allocation of resources. It maintains a good balance between public and private sector. Both the sectors have competition in the interest of public welfare. More than any sector the mixed economy contains all features of the welfare of a state.

Though mixed economy has more positive sides it has also few limitations such as non-cooperation between the two sectors. They do not face each other and private sector is treated like a third person. Public sector is generally inefficient and burdens the mixed economy as a consequence the production falls. High economic fluctuations prevail in the working of mixed economy since there is improper mixture of capitalism and socialism. In a market, the prices of input and are hiking due ot he shortages, the public sector equally experience these shortages and hence economic fluctuation which prevails in capitalist economy also prevails in mixed economy.

The defects of mixed economy are not so discriminating and can be overcome with certain measures. With the efficient functioning of public sector, the deficiency can be eliminated. So the private sector can also be made to work efficiently by proper control and direction. By following fiscal and physical control measures the economic fluctuations can be eradicated.

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