Capitalism Is an Economic System

Question Number 1(a):

1.a).  Capitalism is an economic system in which capital goods are owned by private individuals or businesses. The production of goods and services is based on supply and demand in the general market (market economy), rather than through central planning (planned economy or command economy). Capitalism has its very own characteristics. Firstly, It is a market-based economy made up of buyers (people) and sellers (private or corporate-owned companies). Secondly, The goods and services that are produced are intended to make a profit, and this profit is reinvested into the economy. Thirdly, a freedom of choice and enterprise such as people are free to build their own business and  free to invest, trade and organize. Fourth, The government should not interfere in the economies of the free market, meaning, the market determines investments, production, distribution and decisions, and government interference is only allowed when making and enforcing rules or policies governing the conduct of business. Lastly, There is a need for continual production and purchase for a capitalistic economy to operate efficiently. Socialism is a populist economic and political system based on the public ownership (also known as collective or common ownership) of the means of production.  Those means include the machinery, tools and factories used to produce goods that aim to directly satisfy human needs. Socialism has it own characteristics. Firtsly, The means of production are owned by public ownership resources or cooperatives (the state), and individuals are compensated based on the principle of individual contribution. The government operates and own all resources to ensure that there’s equal opportunity to all citizens does not matter of their income. Secondly, Economic activity and production are planned by the central planning authority and based on human consumption needs and economic demands. Thirdly, Socialists believe economic inequality is bad for society, and the government is responsible for reducing it via programs that benefit the poor. Socialists believe economic inequality is bad for society, and the government is responsible for reducing it via programs that benefit the poor. Lastly, it has price mechanism of lesser importance. Price of goods and services are made by government and not determined by the demand and supply. The major differences between capitalism and socialism revolve around the role of the government and equality of economics. Capitalism affords economic freedom, consumer choice, and economic growth. Socialism, which is an economy controlled by the state and planned by a central planning authority, provides for a greater social welfare and decreases business fluctuations.

1.b).  First of all, each economics sytem has their own advantages and disadvantages. There are many advantages and disadvantages for Capitalism economic system. First of advantages is, Consumer choice. Individuals choose what to consume, and this choice leads to more competition and better products and services. Secondly, Efficiency of economics. Goods and services produced based on demand create incentives to cut costs and avoid waste. Thirdly, flexibility where the capitalism provides flexibility that changes with circumstances. Lastly, Variety of consumer goods. Where the competition creates efficiency in production. First of disadvantages  for capitalism is, A chance of a monopoly of power. Firms with monopoly power when a specific person or enterprise is the only supplier of a particular commodity can abuse their position by charging higher prices. Secondly, Inequality. A capitalist society is based on the right to pass wealth down to future generations and If a small group of people hold all the wealth and that wealth continues to be passed down to the same groups of people, inequality and social division occur. Thirdly, social costs. Where workers may face social problems such as health problems arising from the polluted environtment caused by factory waste. Lastly, Recession and unemployment. An economy based on the market of consumers and producers is invariably going to experience growth and decline.

2.a) Interrelated Demand is the law of demand assumes that only price and quantity changes and other factors remain constant. Below are some of the demands, which are inter-related to one another.

2.b.i) Joint Demand

Price[pic 1][pic 2]

                                         [pic 3][pic 4][pic 5][pic 6][pic 7]

                                        DD

             Q1           Q2             Quantity

• Positive relationship exists between substitute goods
• For example, a rise in price of the sugar will bring a fall in their demand together with the demand for tea and lower its price, if the supple of tea remains unchanged.

2.b.ii) Competitive Demand

Price                                  DD[pic 8]