A capitalist economy has a significant effect on the growth of an economy. It is an economic system where the factors of production such as natural resources, capital goods, and labour are under the control of private businesses. The production of goods and services depends on the demand and supply in the market. Primarily, the main characteristic of a capitalist economy is the motive of earning profit. Furthermore, private individuals, as well as companies, can own private properties such as factories, equipment, and machines. Individuals have the right to make their own economic decisions without interference.
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THE MERITS OF A CAPITALIST ECONOMY
In a capitalist economy, the incentive of the producers is to produce the best goods and services due to the feature of the profit motive and ability to hold private property. Additionally, capitalism promotes faster and higher growth of the economy. This is because investors invest in projects that are profitable to them. They are under no pressure to produce any goods and services they do not wish to. Moreover, private ownership of factors of production and resources leads to the optimum utilization of resources.
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BENEFITS OF THE GROWTH OF AN ECONOMY
Fundamentally, the growth of an economy leads to a higher average income. It enables consumers to consume more goods and services hence they enjoy better living standards. It encourages firms to invest to meet future demand. Consequently, higher investment increases the scope for future economic growth. In a capitalist economy, growth lowers unemployment as a result of higher output and positive economic growth causing firms to employ more workers. Furthermore, economic growth lowers government borrowing as it creates higher tax revenues. Higher tax revenues enable the government to spend more on public services such as education and health care.
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