Question

Distinguish between a capitalist economy and a socialist economy

Answer 1

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Capitalist encourages innovation and individual goals while Socialism promotes equality and fairness among society. In the socialist economy, the resources are state-owned but in the case of thecapitalist economy, the means of production are privately owned.

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Answer 2

The major differences between capitalism and socialism revolve around the role of the government and equality of economics. Capitalism affords economic freedom, consumer choice, and economic growth. Socialism, which is an economy controlled by the state and planned by a central planning authority, provides for a greater social welfare and decreases business fluctuations.

Capitalism is characterized in the following ways:

• It is a market-based economy made up of buyers (people) and sellers (private or corporate-owned companies).

• The goods and services that are produced are intended to make a profit, and this profit is reinvested into the economy.

Socialism is characterized in the following ways:

• The means of production are owned by public enterprises or cooperatives (the state), and individuals are compensated based on the principle of individual contribution.

• There is equal opportunity for all. Large-scale industries are cooperative efforts, and thus, the returns from these industries must be returned to and benefit society as a whole.