Difference between Socialist and Capitalist Economy

Transcript

Types of Economy Socialist Economy Production Activities are carried out by Government Govt Decides What to produce How to Produce For Whom to produce as per Needs of Society It is also called Centrally Planned Economy This is not covered in Class 12 syllabus Capitalist Economy Production Activities are carried out by Capitalist Entrepreneurs Market Decides What to produce How to Produce For Whom to produce as per Forces of Demand and Supply It is also called Market Economy This is covered in Class 12 syllabus What is a Capitalist Economy? Production Activities are carried by capitalist entrepeneurs These entrepreneurs have complete control over major decisions of enterprise and take risk of doing business How does a Capitalist Economy function? Entrepeneurs supply the capital for running business or they may borrow it from banks (take loan) They employee labor to run business and fixed natural resources (land) to run business Money which they earned is called Revenue A part of Revenue is spent on paying interest on loan, salary to employees and rent from land Remaining Revenue is Profit Profits are used to buy new machine or start new factory. This is called Investment Expenditure How does a Capitalist Economy Function? Money Invested (Capital , Loan) Factors of Production Purchased- (Labour, Rent etc.) Revenue Earned Less Interest on Loan Less Salary to Employee Less Rent for Land Profit Less investment Expenditure Balance Profit of Owner 100 20 30 10 40 10 30 It means Profit Invested In buying new machine or starting new factory Important Features of a Capitalist Economy Private Ownership There is private ownership of factors of production Example - Land is owned by private Sector Profit Motive Production takes place for selling output in market for profit Labour Market There is sale and purchase of labour services Price at which labour is sold is called wage rate This wage rate keeps on fluctuating Price Determination Production of goods and service depends upon demand and supply if there is more demand for a particular product, its price will rise When price will rise, producer will increase their production Less govt interference In a capitalist economy, there is no government interference in the daily activities of the business. The customers and producers are free to make their own decisions regarding any product or service. High Competition between Producers There is high level of competition between different firms Each firm wants to capture the market and earn more profit than others NCERT Questions Q2 What are the important features of a capitalist economy? Ans A Capitalist Economy is one in which Production Activities are carried by capitalist entrepreneurs. Important features of a Capitalist Economy: 1 Private Ownership There is private ownweship of factors of production Example-Land is owned by private Sector 2 Profit Motive Production takes place for selling output in market for profit 3 Labour Market There is sale and purchase of labour services Price at which labour is sold is called wage rate This wage rate keeps on fluctuating 4 Price Determination Production of goods and service depends upon demand and supply If there is more demand for a particular product,its price will rise When price will rise, producer will increase their production 5 Less govt interference In a capitalist economy, there is no government interference in the daily activities of the business. The customers and producers are free to make their own decisions regarding any product or service. 6 High Competition between Producers There is high level of competition between different firms Each firm wants to capture the market and earn more profit than others Other Books Q1 What is the difference between Socialist and Capitalist economy? Ans