Question

There are two major economic theories – Classical and Keynesian. Classical theory is closely aligned with what is popularly known as capitalism, while Keynesian theory forms much of the foundation for socialism.

4) Capitalism is based largely on the idea of individualism and liberty, or freedom. Individualists see the person and all their unique characteristics rather than their identification in certain groups. Capitalists also view human freedom as a high priority where individuals can largely responsible for determining their own success and choosing how to best live their lives. Please explain how capitalists incorporate the ideas of individualism and liberty into their ideas concerning the role of government in the economy. What are some of the good and/or bad consequences of trying to base economic policies upon such ideas?

7) Compare and contrast nations that have been largely capitalistic with that that have been more socialistic. Give an example of each and discuss some of the differences between the quality of life in those nations, particularly with respect to GDP per capita, economic freedom, medical care, the number of people who have been killed by their government, and the number of people who have been pulled out of poverty over time.

Answer 1

4. Capitalist economy is a kind of economy in which people are given optimal freedom. They are free to go whereever they want to and do whatever they wish to without harming others. Capitalism is based on individualism. Individuals are given fullauthority to find out what suits them the best. Most of part of a capitalist economy is kept on invisible hand in which the main two forces of an economy i.e. demand and supply are kept free for moving and government rarely interfere in it. very few things of economy are kept in hand of government.

In capitalist economy people are more regarded as individuals than in groups. They are given full freedom to find out what they want and how much they wish to pay in the market. Buyers are given freedo to demand quantity and quality of goods they wish and sellers are also given freedom to calculate the amount of goods they can supply. The economy is not regulated by government or any particular body. Instead it is kept on buyers and sellers to identify quantity and quality of goods and services. Though in some cases regulation from government is necessary as everything in the economy cannot be kept unregulated.

There are some good as well as bad consequencecs of capitalist economy. First we are going to discuss about the good consequences of a capitalist economy:

• When the economy is kept free in most part and the price and quantity of goods and services are decided by buyers and seelers, it gives them ample opportunity to increase there welfare as a whole. Buyers tend to demand those goods that they prefer most and make demand up to a certain level in which the price of it matches his capability to spend. On the other hand seelers can also decide which goods and services they wish to supply and at which quantity with the help of supply curve. They supply the goods and services that the buyers demand and upto a certain amount in which the price of the goods aor services donot fall too far. In this way both of them gets better off by adopting the system.
• Government plays a big roll in socialist economy to decide which goods to be produced and at which amount. But in capitalist economy government plays a minor role in deciding the quantity and quality of goods and services in the economy. Only in some important cases e.g. life saving drugs, alcohol, foreign products etc which have positive or negative externality which can affect the home economy, government plays the roll of regulator.
• In capitalist system individuals are given freedom to identify the demand and supply of goods and services and they can enter or leave the market at their will. This give them a good amount of accessability in the market. As a result the whole market system remains flexible and can operate properly.

Though the system may arise some difficulties as well. When most of the activities of the market is kept on the process of supply and demand and it is kept mostly unregulated, the market becomes vulnerable to external shocks. Any sort of external shock be it from demand side or supply side can affect the process of market to a large extent. It can affect the whole system of the economy. A classic example of this is the great depression of 1930s. During that time the whole functinality of classical system was brought into question. The only way out to defend the capitalist markets from these undue shocks is to make government bodies to regulate and investigate the working of the market system on a regular basis. Government may not intervene directly in the market but it may keep a close eye to the process of the economy. Government should intervene in some products which have externality which can hamper the functioning of the market as a whole.

7. We should mention two nations which are neighbours but one is capitalistic and other is socialist. They are South Korea and North Korea. South Korea is in proper democracy whereas North Korea is under dictatorship in which government decides everything in the country. Though they are immediate neighbours, there is a huge difference one can easily identify in properity of their economy. Form the vault of history we can see that the socialist economies experience a low amount of growth in comaparison to the capitalist economy. This could be seen in West Germany and East Germany. West Germany which had capitalist economy experienced a huge growth in comparison with the socialist East Germany. Tjis was the main reason behind the historic event of fall of Berlin wall in 1991.

Now coming to our examples that is Capitalist South Korea and socialist North Korea we can differentiate the functioning of economy and governement by some examples.

First we need to consider the quality of life in both the copuntries. South Korea is a democratic country where people have every right to do something which gives them joy but North Korea is in dictatorship and inthis country one cannot do anything without taking permission from the government. The most popular method of identifying quality of life in a country is its per capita GDP. Per capita GDP of South Korea is $31,431 whereas per capita GDP in North Korea is $1,300. South Korea is ranked 42th in press freedom index while North Korea is termed as 180th among the 180 countries in press freedom index. In terms of medical care we must say South Korea has one of the most modern medical facilities in the world which is shown in the ongoing COVID 19 pandemic situation. South Korea brought the situation under control with its modern medical equipments. But in Noth Korea medical care system is also not good at all. Being a poor country from root, it cannot avail modern medical equipments for treatment. Proper medical facility is available only for government officials. The mortality rate in South Korea in 2018 was 582.5 per 100000 people. And the mortality rate of North Korea was 9.008 per 1000 people.Poverty rate in South Korea was 14.28 percent in 1997 and it fall to 7.24 in 2001. It is estimated that nearly 60 percent of North Korean population live below poverty line in 2020.

With the help of the data mentioned above it can be easily concluded that inspite of being neighbouring country, people of North Korea lead worse life than the people in South Korea.