Question

1. The key features of capitalism are stated in the textbook, Companies, Profit motive, Competition and Private property. Select one of these features and summarise its importance to the nature of capitalism.
2. Refer to textbook pg112 Identify the meaning of the following 2 key terms that were outlined by Adam Smith, the invisible hand and Division of labour. Outline how they are connected to the ideas of capitalism and business
3. Identify how the Occupy movement is connected to the criticisms of capitalism

Answer 1

Definition and Characteristics Explained in Detail: -

Capitalism is one of the core concepts on which numerous economies like the United States is built. Over the years countries which were previously opposed to the idea also started following the same examples of which are those such as China and India which from the early days were considered to be conservative economies in the sense that they restricted trade and limited private business as far as possible.

In definition, capitalism refers to an economic system, wherein private business decides as to what goods and services would be produced in the market and there is lack of government influences in the same. The core motive of this business model, is to maximize profits for business owners and ensure that the consumers are satisfied at the same time.

Accordingly, as demanded by the case study, profit motive is the core of capitalism. It operates on a mode of companies co existing and competing with each other and are allowed to hold private property as far as possible. This economic system thereby believes that for the economy to maximize satisfaction and consumer welfare, it is important that a country operates in a manner that companies are encouraged to exist, with the idea that they maximize on profit. As this happens, they produce only those goods and services which would help the economy in creating goods that satisfy maximum consumers.

In such an economy, competition is created by itself, since the government does not take control over what business would run, profit margins, pricing or entry and exit. All that determines whether a company would survive or not is the fact that it is able to satisfy its consumers or not and generate significant profits for themselves.

Conclusion: -

Thus, we can conclude by saying that capitalist societies are those, wherein private companies are encouraged and for the motive of earning maximum profits for themselves engage in business. This leads to competition in the market as there is no government control and private property is further encouraged.

Adam Smith Invisible Hand & Division of Labour: -

Adam Smith is regarded as the father of economics and it is his very theories on which the free markets of today have been developed. He wrote a famous book known as the Wealth of Nations wherein, he wrote the importance of free markets.

He said that the invisible hand is a force which comes into play, wherein a market would always be at an equilibrium position in the long run if there was no government control over business. He said that if a product was offered for a lower price by one of the sellers as an example in such a market, then competition would either have to lower down the prices to an equilibrium position or to offer a product which was relatively better in order to make others non-competitive.

He said that when producers are free and consumers are free as well, "this unobservable force would help the market in reaching an equilibrium all by its own self due the forces of demand and supply."

Another key concept introduced by Adam Smith was that of Division of Labour wherein he stated that people should be assigned role specific tasks for them. This then would allow them to be highly specialized in their work and the overall productivity would be increased substantially allowing for increased production and maximum profits for business owners. :-

Occupy Movement: -

The Occupy movement was part of a campaign started in 2011 wherein the belief system of people was that capitalism lead to inequality in the economy. The belief system stems from the fact that inequality in countries where capitalism is on the rise has not been able to be diminished. There are examples of countries such as India and China wherein disparity of income remains a big issue even when most industries have been able to embrace the model of capitalism as described above.

The critics of capitalism are connected to this movement because they believe that capitalism only brings profits and satisfaction for those sections of the society which have higher money available with them this is why this movement wherein people would demonstrate regarding inequality matches what critics of capitalism have always had to say.

Please feel free to ask your doubts in the comments section