Capitalist economy is also termed as a free economy (Laissez faire, in Latin) or market economy where the role of the government is minimum and market determines the economic activities. Globalism The term coined by Manfred D Steger ( ) to denote the new market ideology of globalisation that connects nations together through international trade and aiming at global development. This ideology is also termed as ‘Extended Capitalism’. Capitalism Socialism Mixedism Adam Smith - - Introduction to Macro Economics .
Free Competition: There is free competition in both product market and factor market. The government or any authority cannot prevent firms from buying or selling in the market. There is competition between buyers and sellers. .
Price Mechanism: Price mechanism is the heart of any Capitalist economy. All economic activities are regulated through price mechanism i.e, market forces of demand and supply. . Role of Government: As the price mechanism regulates economic activity, the government has a limited role in a Capitalist economy.
The government provides basic services such as, defence, public health, education, etc. . Inequalities of Income: A capitalist society is divided into two classes of people viz ‘haves’ and have - nots are those who own property and ‘have- nots’ who do not own property but work for their living. The outcome of this situation is that the rich become richer and poor become poorer.
Here, economic inequality goes on increasing. Merits of Capitalism . Automatic Working: Without any government intervention, the economy works automatically. .
Efficient Use of Resources: All resources are put into optimum use. . Incentives for Hard work: Hard work is encouraged and entrepreneurs get more profit for more efficiency. .
Economic Progress: Production and productivity levels are very high in Capitalist economies. . Consumers Sovereignty: All production activities are aimed at satisfying the consumers. Consumers’ desire determines what to produce.
so they are like sovereigns. . Higher Rates of Capital Formation: Increase in saving and investment leads to higher rates of capital formation. .
Development of New Technology: As profit is aimed at, producers invest on new technology and produce