Question

Step 1: Read the following questions, and use what you have learned about how the economy might impact your business industry, and to summarize your responses in 5 full pages. Consider the concepts and questions below when assessing the economy and the impact it may pose on your business:

Describe your ideal capitalist economy. Will these conditions maximize your sustainability and profitability?

What indicators would you use to measure goods and services?

What happens when the quantity demand is impacted?

Describe your socialist economy. Will this type of economy bring maximum sustainability and profitability to your business?

Explain whom goods and services will be produced for. Who do you expect to sell most to and what aspect of the economy may impact your business activities the most?

What happens when price flooring is in effect, and how does it impact your labor market? Your sales, your manufacturing?

Step 2: Review the materials and conduct additional topic research to demonstrate the application of the concepts in a real-world business environment. (Economic indicators)

Answer 1

1.

Capitalism is often referred to as a free market economy in its purest form; a common type of socialism is communism. Embedded in these economic systems are political and social elements that influence the degree of purity of each system. In other words, many capitalist nations have elements of socialism interwoven. So even though there are different degrees or levels of commitment to the ideals of capitalism, there are several traits that are common among all capitalists.

1. A Two-Class System

Historically, a capitalist society was characterized by the split between two classes of individuals—the capitalist class, which owns the means for producing and distributing goods (the owners) and the working class, who sell their labor to the capitalist class in exchange for wages. The economy is run by the individuals (or corporations) who own and operate companies and make decisions as to the use of resources. But there exists a “division of labor” which allows for specialization, typically occurring through education and training, further breaking down the two class system into sub-classes (e.g., the middle class).

2. Profit Motive

Companies exist to make a profit. The motive for all companies is to make and sell goods and services only for profits. Companies do not exist solely to satisfy people's needs. Even though some goods or services may satisfy needs, they will only be available if the people have the resources to pay for them.

3. Minimal Government Intervention

Capitalist societies believe markets should be left alone to operate without government intervention. However, a completely government-free capitalist society exists in theory, only. Even in the United States, the poster child for capitalism, the government regulates certain industries, such as the Dodd-Frank Act for financial institutions. By contrast, a purely capitalist society would allow the markets to set prices based on demand and supply for the purpose of making profits.

4. Competition

True capitalism needs a competitive market. Without competition, monopolies exist, and instead of the market setting the prices, the seller is the price setter, which is against the conditions of capitalism.

5. Willingness to Change

The last characteristic of capitalism is the ability to adapt and change. Technology has been a game changer in every society, and the willingness to allow change and adaptability of societies to improve inefficiencies within economic structures is a true characteristic of capitalism.

Yes, these conditions help maximize your sustainability and profitability. Capitalism in its purest form is a society in which the market sets prices for the sole purpose of profits and any inefficiency or intervention that reduces profit making will be eliminated by the market.

2.

GPI is the best metric that gives an overall picture.

A genuine progress indicator (GPI) is a metric used to measure the economic growth of a country. It is often considered an alternative metric to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others). The GPI nets the positive and negative results of economic growth to examine whether or not it has benefited people overall.

BREAKING DOWN Genuine Progress Indicator (GPI)

Genuine Progress Indicator is an attempt to measure whether the environmental impact and social costs of economic production and consumption in a country are negative or positive factors in overall health and well-being.

The GPI metric was developed out of the theories of green economics (which sees the economic market as a piece within a ecosystem). Proponents of the GPI see it as a better measure of the sustainability of an economy when compared to the GDP measure. Since 1995, the GPI indicator has grown in stature and is used in Canada and the United States. However, both these countries still report their economic information in GDP to remain in line with the more widespread practice.

3.

Any change or movement to quantity demanded is depicted as a movement of the point along the demand curve and not a shift in the demand curve itself. The demand curve effectively remains static. So, if vendors decide to increase the price of a hot dog to $6, the quantity demanded moves up the demand curve from two to one. If, however, the price of a hot dog decreases to $4, the quantity demanded moves down the demand curve and increases from two to three. At a price point of $4, customers want to consume three hot dogs.

A shift in the demand curve itself only happens in the long run and comes as a change to equilibrium. Complete changes in consumer behavior normally cause this type of shift. If, for example, environmentally conscious consumers switch from gas cars to electric cars, the demand curve for traditional cars inherently shifts.

4.

In contrast to capitalism, socialists believe shared ownership of resources and central planning offer a more equitable distribution of goods and services. In short, they hold that workers who contribute to economic output should expect a commensurate reward. This sentiment is crystallized in the socialist slogan: “From each according to their ability, to each according to their need.”

Marx himself thought that toppling the existing capitalist order required a revolution led by the working class or proletariat. However, many socialist leaders—including influential “social democrats” in France, Germany and Scandinavia—advocate reforming, rather than replacing, capitalism to achieve greater economic equality.

This does not bring maximum sustainability to your business. So basically in a socialist economy, private companies or individuals are not allowed to freely manufacture the goods and services. And the production occurs according to the needs of the society and at the command of the State or the Planning Authorities. The market and the factors of supply and demand will play no role here.