Question

MACROeconomics paper on Capitalism

Discuss ownership of property, capital wages, prices and competitive markets.

Answer 1

Capitalism is type of economy in which individuals risking money to make a profit. It is also known as a free enterprise economy. A free enterprise means that there will be only a little government interference in the market to buy and sell goods and services.

The characteristics of capitalism are :

• Rule of law : It states that the laws are enforced equally in a capitalist country. Both the government and governors are under the law. Rule of law doesnot mean that countries have laws. Its about the fairness of law enforcement.
• Property rights : people have the rights to themselves and to thier possessions. This property protected by the government. Property rights acts as an incentive to work, save and invest. It also makes borrowing possible because you can use things you own as collateral.
• Market forces : These forces makes buyers and sellers freely and willingly engage in market transactions. Here the prices are set by supply and demand.
• Profit motive : people are free to risk any part of their wealth inorder to generate more wealth. If their business succeeds, then they will experience rewards and if not, then they will lose money.
• Competition : competition forces the lowest possible prices on goods. This helps consumers bu guaranteeing good prices and the best product. This helps the economy bu ensuring that only the most efficient producers will survive.
• Innovation and Entrepreneurship : In a capitalist economy, new ideas and skills are encouraged. Entering and beginning a business is relatively easy in this economy.
• Economic freedom : The ability for people to enter and exit the market place at will. People do the jobs they want, live where they want. No one is tied down and everyone makes choice on their self interest.

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