Point out the merits and demerits of the capitalist economy?
Answers
Merits of a Capitalist Economy
The producers are more incentivized to produce their best goods and services due to the feature of the profit motive and the ability to hold private property.
The economic growth of an economy is also faster and higher in a capitalist economy. This is because the investors will also invest in projects that are profitable for them. There is no pressure to produce any goods or services if they do not wish to do so for the sake of the public.
Since all resources and factors of production are under private ownership they are used in the most productive manner. This results in optimum utilization of resources.
Ans: There are some distinct demerits of a capitalist economy, some of which are
Can cause a great economic inequality which can lead to social injustice. In a capitalist economy, the gap between the rich and the poor just gets bigger.
Property rights are given precedence over the rights and the well beings of humans
There can be a misallocation of resources. This can lead to higher production of luxury goods which will, in turn, make the necessities even more expensive and out of reach for a part of the population.
Firms tend to spend large amounts on promotion and selling expenses. This is a waste of valuable resources.