MBA 1st Year Capitalism or Capitalist Economy Study Material Notes

MBA 1st Year Capitalism or Capitalist Economy Study Material Notes: In this post, we will learn about MBA 1st Year Capitalism or Capitalist Economy Study Material Notes. In MBA 1st Year there is one of the most important questions comes from Economic System. You will learn about MBA 1st Year Capitalism or Capitalist Economy Study Material Notes. MBA is a process of development.

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Capitalist Economy or Capitalism

In a capitalist economy, households and firms are the basic production units. The capitalist system is also known as a free enterprise economy and market economy. It is characterized by the private ownership of the means of production, individual decision-making, and the use of the market mechanism to carry out the decision of individual participants and facilitate the flow of goods and services in markets. (MBA 1st Year Capitalism or Capitalist Economy Study Material Notes)

According to Karl Marx, “Capitalism is a particular mode of organization of production which is characterized by Wage slavery, Production, and creation of surplus value”.

According to Looks and Hoots, “Capitalism is a system of the economic organization featured by the private ownership and the use for the private profit of man-made and nature-made capital”.

In a pure market economy, all productive activities are privately owned or supposed to be owned by the state. The goods and services that a country produces and the quantity in which they are produced are not planned by anyone. Rather, production is determined by the interaction of supply and demand and signaled to produce through the price system.

If demand for a product exceeds supply, prices will rise, signaling producers to produce more and if supply exceeds demand, prices will fall, signaling producers to produce less. (MBA 1st Year Capitalism or Capitalist Economy Study Material Notes)

In this system, consumers are sovereign. (MBA 1st Year Capitalism or Capitalist Economy Study Material Notes)

Characteristics of Capitalism

The following are the main characteristics of capitalism:

1. Free Enterprise: The term ‘free enterprise’ implies that private firms are allowed to obtain resources, organize production, and sell the resultant product in any way they choose. It means that there will not be any government or other artificial restrictions on the freedom and ability of private individuals to carry out any business.
2. Private Ownership: The factors of production-land, labor, and capital are privately owned and production occurs at private initiative. Individuals have their property rights protected and are usually free to use their property as they like and as long as they do not infringe on the legal property rights of others.
3. Limited Role of Government: Government interference is necessary to ensure some of the essential features and smooth functioning of the capitalist system, eg, to define and protect property rights, ensure freedom of entry and exit, enforce contractual agreements among private entrepreneurs, ensure the satisfaction of certain community wants, etc.
4. Absence of a Central Plan: The activities of the numerous economic units in a capitalist system are not guided, coordinated, or controlled by a central plan. Resource allocation and investment decisions in a free market economy are influenced by market forces rather than by the state. This clearly shows that there is an absence of a control plan.
5. Consumer’s Sovereignty: The consumer occupies a key position in the economic system. They have complete freedom of choice of consumption. The production decisions are based on consumer desires. Customer is the king,
6. Competition: Competition reduces market imperfections and associated problems. It is necessary for a private enterprise economy to keep initiative constantly on alert, protect the consumer, and maintain a sufficiently flexible price system.
7. Freedom to Save and Invest: The term saving implies the sacrifice of consumption, as saving depends on income and consumption. The freedom to save, inherit and accumulate wealth is a right that perhaps is more typical for the private enterprise system that is the free choice of consumption and occupation.
8. Freedom of Choice of Occupation: The freedom of choice enables the worker to make the best possible bargain for his labor. This implies that the employers have to competitively Capitalismu s bid for labor. But this does not mean the guarantee of a job is a system of economic worker opts for. The choice is practically limited by the extent of the organization featured by the private ownership and the use availability of the jobs. (MBA 1st Year Capitalism or Capitalist Economy Study Material Notes)
9. The Market System: In a market economy, the buyers and private profit from man-made and nature-made capital. sellers express their opinion about how much they are willing to pay for or how much they command for goods and services. Prices guide the purchase decisions of the consumers. The market prices reflect the desires of millions of consumers. It also provides guidance to investors and other business persons. (MBA 1st Year Capitalism or Capitalist Economy Study Material Notes)

Merits of Capitalism or Capitalist Economy

The merits of capitalism are as follows:

1. Democratic Nature: People enjoy full economic freedom under capitalism. The entrepreneurs, the consumers, the workers, and the owners of capital are all free to do work as they like to fulfill their needs and wants. Individual freedom makes capitalism democratic. (MBA 1st Year Capitalism or Capitalist Economy Study Material Notes)
2. Rapid Economic Growth: The capitalist system helps in rapid economic growth due to incentives and initiative.
3. Incentive: In the capitalist economic system, entrepreneurs have sufficient incentive to undertake enterprise and bear risks. The profit motive induces them to invest money even in those industries which involve great risks.
4. Innovation: In order to survive in a competitive market, entrepreneurs introduce new products, new techniques of production and distribution, and other improvements. They introduce new innovations to increase profits.
5. Efficient Utilisation of Resources: Under capitalism, the scarce resources of the country are used most economically and with minimum waste. (MBA 1st Year Capitalism or Capitalist Economy Study Material Notes)
6. Capital Formation: People have the incentive to save money and invest it in order to earn larger incomes in the future due to the right of private property and inheritance. (MBA 1st Year Capitalism or Capitalist Economy Study Material Notes)
7. Flexibility and Adaptability: Capitalism has an inherent ability to change according to changing requirements and circumstances. It is a dynamic system and can be adapted to the changing environment. That is why capitalism has survived for centuries. (MBA 1st Year Capitalism or Capitalist Economy Study Material Notes)

Demerits of Capitalism or Capitalist Economy

The demerits of capitalism are as follows:

1. Lack of Maximum Social Satisfaction at Minimum Social Cost: Maximum social satisfaction can be achieved when goods produced are made available to those consumers who will have maximum satisfaction from them. But in the capitalist system goods go into the hands of the people who can offer the best prices. In other words, goods are distributed according to the ability to pay than according to the needs of people. (MBA 1st Year Capitalism or Capitalist Economy Study Material Notes)
2. Social Waste: Cut-throat competition among business firms results in unnecessary departure on advertising and ruthless exploitation of natural and human resources of the nation. The misallocation of the country’s resources because producers are guided by the profit motive. They know those goods which rich people can afford rather than those that poor people actually do not. (MBA 1st Year Capitalism or Capitalist Economy Study Material Notes)
3. The concentration of Economic Power: Right to private property and the law of inheritance the concentration of wealth in a few hands. The concentration of wealth and property in the handover inequalities the incomes of people. On the one hand, a few enjoy a luxurious living and on the other, a large section of society is deprived of even the basic necessities of life.
4. Social Discrimination: Capitalism leads to the division of the society into two classes, i.e. Trich) and have not’s (poor). The rich exploit the poor. Thus, capitalism may benefit a few at the cost of many
5. Economic Instability: Capitalism does not provide stability of the price level. Free work of market mechanism results in business cycles wherein business booms is followed by business depression Market mechanism results in business cycles because savings and investment are not coordinated as these are determined by two different classes of people.
6. Loss of Human Values: Capitalism promotes materialistic attitudes in the people. The lust for profits and wealth gives rise to several social evils. It is alleged that capitalism has a conscience, its god is gold. It contains the seeds of its own destruction.
7. Rise of Monopoly: Big business and giant corporations dominate the country’s economy in a capitalist system. They weaken the forces of competition and reduce consumer sovereignty. They influence public opinion and lifestyles to suit their business. Free play of market mechanisms is distorted. (MBA 1st Year Capitalism or Capitalist Economy Study Material Notes)