An economy is a system that provides people with goods and services and directly or indirectly satisfies their wants. In this article, you are going to learn about Capitalist Economy
On the basis of ownership over the means of production, economies are classified into the following categories:
- Capitalist economy
- Socialist economy
- Mixed economy
What is Capitalist Economy?
It refers to a type of economy wherein private owners own the means of production such as land and capital. There is no kind of interference from the government in the economic activities of the country.
Main features of a capitalist economy
- Individuals are free to own and control economic resources. Everyone is independent to choose his/her own business, profession and occupation.
- The people’s economic activities may or may not be controlled by the government.
- Prices of the commodities are determined by the interaction of demand and supply. The government does not interfere in the determination of the prices.
- Profit and earning more income is the purpose of all economic activities.
- Individuals have the right to earn income, to acquire assets and to retain them.
- Consumer is sovereign in a capitalist economy.
- Inequality of income and class struggles are important features of this economy.
The demand for goods and services arises from human wants. No individual in the whole world can fulfill all his/her wants. Wants are unlimited and means are limited. Thus, this scarcity of means in relation to wants brings forth the economic problem of how many resources should be used in satisfying different wants. In this way, one has to choose a set of wants from among unlimited wants which are to be satisfied with limited resources. Scarcity means a situation where only a limited amount of goods can be produced because of the existence of a limited amount of resources.
Central problems of an economy are the problems faced by and common to all kinds of economic systems (capitalism, socialism, and mixed economy). These include problems with decision-making about what to produce, how to produce, and whom to produce. This is because it is not possible for any economy to produce an unlimited variety of goods with limited resources.