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ECONOMIC SYSTEM

CAPITALISM/FREE MARKET ECONOMY


Capitalism or free market economy is an economic system where individuals without any government intervention take all the economic decisions. This economy use price system where buyers and sellers meet and make transactions through market price as its main mechanism in any of their economy activity. Free market economic system enable all individual to be the buyer, seller, employee or employer at their own wish without control from the government.

TYPES OF ECONOMICS SYSTEM


CAPITALISM/ FREE MARKET ECONOMY

CHARACTERISTICS

ADVANTAGES

DISADVANTAGES

Private ownership of resources Freedom of enterprise and choices Consumers sovereignty Competition Minimum government intervention Price system

Production according to the needs of consumers Economic freedom Efficient utilization of resources Greater variety of consumer goods Enhanced trade ,business, and research and development (R&D) Automatic incentives flexibility

inequality of distributions of wealth and income inflation and high unemployment rate lack of social welfare unnecessary variety and wasteful competition misallocation of resources social costs

CHARACTERISTIC OF CAPITALISM SYSTEM.


PRIVATE OWNERSHIP OF RESOURCES Every individual can own resources. They has the right to acquire private ownership individuals or institutions and can accumulate property and use it as they choose. Individual can purchase any property if they have enough money and buy more properties afterwards depending on an individual purchasing power. There is no restriction on the number of properties one individual can have even though theres a law and regulation that must be followed in the process of having it. There are also certain public facilities provided y the government for public usage such as roads, clinics, and school.

FREEDOM OF ENTERPRISE AND CHOICE Individuals are free to own resources as well as to establish any enterprise of their choice. They are free to trade, invest, and organize to produce within the countrys legal framework. For example, if Ommirul decide to start his own business of providing ticketing service, he has the economic freedom to operate this business as long as it is not against countrys legal framework.

CONSUMERS SOVEREIGNTY In capitalism, consumers sovereignty plays an important role. They has the power and authority in deciding which product should they buy and which are not based on their taste and preferences towards goods and services. This will affect the production of the company. Therefore, producers will have to produce goods and services that meet consumers taste and preferences to avoid loss due to product that has been produce but unable to get through the market.

COMPETITION A market economy is also characterized as being highly competitive among producers who aim to obtain the highest profit. Producers produce product that has high quality with greater efficient method to compete among each other. For example, in the production of electronic devices, Samsung and SONY both put their best effort to attract consumers through various marketing strategies such as applying latest features on their new devices to keep consumers loyalty towards their brands in meantime to maximize sales of their product.

GOVERNMENT INTERVENTION Even though theres a governmental law and regulation that need to be followed in capitalism, the intervention from government is limited due to countrys role in stabilizing the economic conditions of the country.

PRICE SYSTEM Economic decisions were made by considerate the price mechanism which means free operation of demand and supply forces without any intervention. In other words, all economic processes including consumption, production, exchange, savings, investment and distribution, work under this price mechanism system which is also labelled as the invisible hand by Adam Smith.

ADVANTAGES OF CAPITALISM SYSTEM.


PRODUCTION THAT ACCORDING TO THE NEEDS OF CONSUMERS Production of product is based on the wants and need of the customers. Producers produce goods and services that consumers want in order to attain and feed customers satisfaction and needs. ECONOMIC FREEDOM People have the right to earn and retain property. Freedom of enterprise occurs. They are free to choose what business they want to run or what occupation they want to do. This economic freedom then will provide sources of manpower from different sectors to the country make the existence of various and flexile functioning of different units of production. EFFICIENT UTILIZATION OF RESOURCES Efficiency in production occurs because of the competition in a market. Resources such as power, money and time are used in minimum unit. For example when a quality goods are produced at a lower cost it will be sell at a lower price. Consumer then can get the quality goods at lower prices because of the efficiency in production technique. VARIETY OF CONSUMER GOODS Producers who compete among themselves will do various marketing strategies to maximize their sales. So they will produce a lot of different things depending on the customers taste and preferences towards the product including the product shape, colour, design and packaging. Therefore, consumers will enjoy a wide variety of the same product. Other than competition factor there is also a variety of consumer goods because of freedom of enterprise that affect the production size. ENHANCED TRADE, BUSINESS, AND RESEARCH AND DEVELOPMENT (R&D) In order to compete with other competitors an entrepreneur or producers have to do researches for the new innovations. This will lead to rapid expansion and increase in employment and income. This researches give some people such the innovators some benefits through copyright, patents, etc. AUTOMATIC INCENTIVE Capitalism provides encouragement to efficient producers. Producers who are efficient will gain more benefits through the price mechanism than the efficient producers. FLEXIBILITY Capitalism has the flexibility that changes automatically with the circumstances. For example, during war, the economy will divert its resources to produce more military equipment and will function as a free market again when the war is over.

DISANVANTAGES IN CAPITALISM SYSTEM.


INEQUALITY IN DISTRIBUTION OF WEALTH AND INCOME Since theres no government intervention in capitalism individuals can acquire private resources and start a business. However this system widens the gap between the rich and the poor. People with wealth can obtain resources and start a business while the poor can only offer their labour. The rich get richer and the poor get poorer. INFLATION AND HIGH UNEMPLOYMENT RATE Disparity of demand and supply of labour occurs since it is governed y the invisible hand. During depression high unemployment rates occurs because of business fluctuation. LACK OF SOCIAL WELFARE Pension, social security or accident benefits to employees doesnt provide y the owners. Theres lack of provision of social amenities such as schools, hospitals and the like. In this system, undesirable social effects such as theft and crime tend to e high. UNNECESSARY VARIETY AND WASTEFUL COMPETITION Too much competition leads to unnecessary high costs of production. This is because producers id a high price for resources. There will e a waste of resources as some products are better advertised to attract consumers, resulting in consumers misinterpreting advertisements and being misled. MISALLOCATION OF RESOURCES A producers objective is to maximize profit and he will, therefore, only produce products which give higher profits. This will lead to the production of luxury goods (for rich people), resulting in a surplus, and a lack of production of goods for the poor. SOCIAL COSTS Workers may face social problems (health problem ) arising from the polluted environment caused y an improper disposal of factory wastes. The intention of most producers is to increase private profit and this often leads to a neglect in the welfare of their workers.

MICROECONOMY CAPITALISM SYSTEM ECONOMY


LECTURER NAME : MISS HERNIZA ROXIANNE MARKUS GROUP : BM1112A3 NAME : LAURIAN JOHN JOHNNY STUDENT ID : 2011196531

MICROECONOMY CAPITALISM SYSTEM ECONOMY LECTURER NAME : MISS HERNIZA ROXIANNE MARKUS GROUP : BM1112A3 NAME : MISWARA AYIM STUDENT ID : 2011508011