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

ANSWER:

STEP 1:

Part A: An ideal capitalist economy is the democratic capitalist economy.

To fully understand why capitalism endorses maximally extensive property rights we need to turn from philosophic justifications to the analysis of the market and efficiency. In his classical paper on “The Problem of Social Cost” R.M. Coase showed that, regardless of the initial distribution of property rights, if there are no transaction costs, free exchange in the market yields an efficient outcome. Consider an example.

As we all know, there is a great demand for solar panels in the West; environmentalists, those concerned about global warming, and those interested in national energy independence all are urging increased use of solar power. Now the production of solar panels requires polysilcon, but manufacturing polysilcon produces toxic waste.

In western countries this waste is recycled; in China, however, recycling technologies are not well developed, and recycling is not required by law. Waste is either stored or, after minimal reprocessing, released into the environment.

It is estimated that to recycle the waste would increase the cost of Chinese polysilcon by somewhere between 50 to 400%. It is disputed how great the resulting pollution is, but it is safe to say that enough waste leaks on to adjoining land to severely curtail agriculture on surrounding farms

Let’s first try and understand a capitalist economic system. It is the one in which wealth, and the means of producing wealth, are privately owned and controlled rather than state owned and controlled. The land, labor, and capital are owned, operated, and traded by private individuals, and investments, distribution, income, production, pricing and supply of goods, commodities and services are determined by voluntary private decision in a market economy. A distinguishing feature of capitalism is that each person owns his or her own labor and therefore is allowed to sell the use of it to employers.

To summarize wealth and production are privately owned; each person owns his/her labor and can sell the use of it to employers, and each person’s wealth depends on the price set by his/her employer, or his/her own price.

Now, let’s try and understand the ideal capitalist economy, i.e. Democratic Capitalist Economy. Democratic capitalism can be disruptive and unpredictable. But the process of "creative destruction" is critical to a healthy economy and society. New products and industries render old ones obsolete. Some jobs may be destroyed. But other jobs--more of them--are created. In this way, individuals and resources go where they are most needed by people and businesses, and wealth-producing innovations are developed. Without creative destruction, the economy would stagnate. Living standards would be lower and unemployment would be far higher.

The rule of law is essential to the successful functioning of democratic capitalism. Certain regulations are necessary in an open economy. Yet others are a response to political pressure from self-interested constituencies. Politically motivated, overly meddlesome regulations and rules produce unintended consequences, hurting the very people they are trying to protect. They micromanage the economy and stifle innovation, favoring incumbents at the expense of innovative outsiders.

Now, these conditions can maximize one’s sustainability and profitability for a longer period of time, since state or government will enable private forces (companies and individuals) to foster sustained wealth through new economic policies and infrastructure which further help them in increasing employ ability and increased demand.

The top three indicators that would be used to measure goods and services in an ideal capitalist economy, i.e. Democratic Capitalist Economy, are:

Gross Domestic Product (GDP):

• which is a broad measure of a country's economic activity, used to estimate the size of an economy and growth rate. GDP can be calculated in three ways using expenditures, production, or incomes. It can be adjusted for inflation and population to provide deeper insights. Though it has limitations, GDP is a key tool to guide policy makers, investors, and businesses in strategic decision maing in order to prosper Capitalist economy.

Employment Rate –

• People with jobs can spend and invest. Ultimately, both of these actions are needed to drive the economy. Remember that employment is a lagging indicator. Recessions end before unemployment has bottomed, so those looking for a change in direction before acting will have already missed the market rebound.

Spending rates –

• We live in a consumption-based society. As consumers increase their expenditures, the economy grows. While many surveys attempt to capture people’s feelings about the state of the economy, behavior is what counts. Look to the monthly retail sales report for an indication of actual consumer activity.

Socialist economics :

comprises the economic theories,practices,and norms of hypothetical and existing socialist economic systems. A socialist economic system is characterised by social ownership and operation of the means of production that may take the form of autonomous cooperatives or direct public ownership wherein production is carried out directly for use.

Socialist systems that utilize markets for allocating inputs and capital goods among economic units are designated market socialism. When planning is utilized, the economic system is designated as a socialist planned economy. Non-market forms of socialism usually include a system of accounting based on calculation-in-kind to value resources and goods Socialist economics has been associated with different schools of economic thought.

Marxian economics provided a foundation for socialism based on analysis of capitalism, while neoclassical economics and evolutionary economics provided comprehensive models of socialism. During the 20th century, proposals and models for both planned economies and market socialism were based heavily on neoclassical economics or a synthesis of neoclassical economics with Marxian or institutional economics.

Part B:

Economically, socialism denotes an economic system of state ownership and/or worker ownership of the means of production and distribution. In the economy of the Soviet Union, state ownership of the means of production was combined with central planning, in relation to which goods and services to make and provide, how they were to be produced, the quantities, and the sale prices.

Soviet economic planning was an alternative to allowing the market (supply and demand) to determine prices and production. During the Great Depression, many socialists considered Soviet-style planned economies the remedy to capitalism’s inherent flaws – monopoly, business cycles, unemployment, unequally distributed wealth, and the economic exploitation of workers.

To summarize Wealth, production and distribution are owned by the state, all economic terms, goods, services, quantities and prices are centrally planned, wealth is distributed amongst the people.

Now, a socialist economic system is not going to bring maximum sustainability and profitability to your business, as government or state plays a major part and its not possible for them to produce at an optimal state.

So, An Ideal Economic System is a combination of both –Capitalist and Socialist economic systems – a system which a minimum wage is distributed amongst all citizens sufficient for purchasing basic food items, schools, living expenses, housing, etc.

Products, Services, Prices and Quantities are determined at national level as a guideline to all industry and commerce, but not regulated by law. Minimum levels are determined, nonetheless every factory, workshop, producer and shop has it’s own right to determine how much they will produce above the minimum level.

Each person has his/her own right to work, however, his/her work work will proportionately generate via taxes income for the government to distribute amongst it’s citizens and to increase general welfare.

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

As a brief example:

• This would allow someone not to work and receive minimum benefits to allow him/her to live a decent life. Those who put more effort into their work will be able to generate their own income, but will have to pay more taxes depending on the amount of income they have. People who barely make an income won’t be taxed as heavily as those who are generating massive amounts of money working in demanding positions.
• The amount of tax would have a maximum level. For example, someone with a small wage will be taxed 1%, someone with a medium wage would be taxed 10%, someone with a very large income will be taxed up to 20%.
• That way it is beneficial for those with low incomes as they also receive help by the government to live, but it is also beneficial for those who want to work more as they receive a larger income, and it is beneficial for the government as they will receive more taxes from those who can pay them, support from the masses, and extra money to be able to reinvest into the nation and technology.