Capitalism

What is Capitalism?

This is an economic system in which the basic resources, or means of production, are owned by private individuals. This economic system is based on acquiring private property, mostly for private use.

Under this system, the allocation of goods and services is done properly by the price system, or by the interactive movement of the forces of demand and supply. Capitalism is also referred to as free enterprise or market. 

Characteristics of Capitalism:

1. Inheritance.

2. Profit motive.

3. Freedom of individual initiative.

4. Freedom of choice.

5. Free or perfect competition.               

6. Private ownership of means of production.

Answers to the Basic Economic Problems under the Capitalist System:

1. In a capitalist system, buyers express their preferences, by their expenditure. This means that they buy what they desire. These expenditures answer the question of what to produce.

2. Under this system, sellers compete to satisfy buyers, by offering the most desired goods, at the lowest possible price. Producers use the most efficient technology and the lowest cost inputs. The relationship between producers/sellers, answers the question of how to produce.

3. Under capitalism, goods, and services are divided among people, according to their incomes. Incomes are distributed, based on the contribution of each individual to the production process. Each person receives goods and services, equal in value to the resources they contribute. This answers the question of “For Whom to produce”.

4. Firms are set up with a profit motive. It is the amount of profit that determines the level of economic activity.

5. Presence of hard work commitment and competition.

6. Consumers dictate the types of goods to produce, as they only buy the goods of their choice. Consumer sovereigntyConsumer sovereignty is an economic concept where consumers decide what goods and services they want to buy, and businesses must produce those goods and services in order to make a profit. More.