Instead of planning economic decisions through centralized political methods, as with socialism or feudalism, economic planning under capitalism occurs via decentralized and voluntary decisions. Capitalism and Private Property Private property rights are very important in capitalism. Once owned, the only legitimate means of transferring property are through trade, gifts, inheritance or wages. Private property promotes efficiency by giving the owner of resources an incentive to maximize its value.
The shortcomings of the free market mechanism under which there is no role of government in the economic development of a nation.
Due to the failure of the free market mechanism, the intervention of government became indispensible for the growth of an economy. Now, the question arises of determining the extent of government in regulating and managing economic activities. This remains a debatable issue among various economists.
This is because of the reason that the government intervention is also not able to eradicate the economic problems of a nation completely. Different economists have given different viewpoints for the role of government in an economy.
Following are some of the viewpoints given by different economists: The extent of role of government differs in different economies. An economic system is a way through which economic resources are owned and distributed.
On the basis of the ownership and distribution of resources, the economic system can be grouped into three categories, which are shown in Figure Let us learn about the different types of an economic system as shown in Figure A capitalist economy refers to an economy that works on the principle of the free market mechanism.
It is also termed as laissez faire system. In a capitalist economy, the role of government is very limited. The main functions of government, as given by Adam Smith, are to maintain law and order in a country, make national defense stronger, and regulate money supply.
According to Smith, the market system administers various economic functions. However, over a period of time, the functions of government in an economy have increased.
In a capitalist economy, the main responsibilities performed by the government are as follows: Developing and sustaining the free market mechanism system b. Increasing the effectiveness of free competitive market system through various measures In the view of Meade, following are the responsibilities of a government in a capitalist economy: Regulating and controlling various economic situations, such as inflation and deflation, by formulating and implementing various fiscal and monetary measures b.
Controlling the power of monopolistic and large corporations to elude various economic problems, such as unemployment and inequitable distribution of resources c. Possessing the ownership of public utilities, such as railways, education, medical care, water, and electricity, which are required by an economy as a whole d.
Prohibiting discrimination among individuals and providing them equal educational and job opportunities e. Limiting restrictive trade practices and power of trade unions f.
Maintaining law and order, administering justice, and safeguarding the freedom of individuals in an economy g. Supporting private ventures in an economy h. Creating central planning body that helps in the development of an economy on a larger scale i. Handling problems to environment, extinction of natural resources, and growth of population Therefore, we can conclude that the major role of government in a capitalist economy is to control and encourage the free market mechanism.
In addition, the government should encourage private ventures for safeguarding the future of an economy. In a socialist economy, the function of government is entirely different from the function of government in a capitalist economy. In a capitalist economy, the government acts as a regulatory and complementary body.
On the other hand, in a socialist economy, the government plays a comprehensive role in almost all economic activities, such as production, distribution, and consumption, of a nation. In a socialist economy, not only the ownership of private property is allowed to a limited amount, but the concept of free market mechanism is also eliminated.
The private ownership of resources, in a socialist economy, is changed by state ownership. In addition, in a socialist economy, the government plans and regulates all the economic activities centrally at a state level.Get the latest news and analysis in the stock market today, including national and world stock market news, business news, financial news and more.
Economics (/ ɛ k ə ˈ n ɒ m ɪ k s, iː k ə-/) is the social science that studies the production, distribution, and consumption of goods and services.. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes basic elements in the economy, including individual agents and markets, their interactions, and the outcomes of interactions.
This research report provides a forecast for the IT industry in along with 12 major trends to keep an eye on. a market economy is as follows: establishment of rules and institutions in order to enforce agreements and contracts, provide a legal and regulatory framework that diminishes market costs, thereby improving its efficiency and operations.
Market structure is important in that it affects market outcomes through its impact on the motivations, opportunities and decisions of economic actors participating in the market. The goal of economic market structure analysis is to isolate these effects in an attempt to explain and predict market outcomes [ McNulty ; Broaddus, ].
the proper analysis of the current problem and the proposed solutions, I would like to devote this first article with regard to the role of the government in a market economy, Providing the economy with a legal structure: This is the first and most important function a government.