ECO 162 MICROECONOMICS

CAPITALISM
Group Project

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Table of Content

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INTRODUCTION
Microeconomics course direct students to study the types of economic systems. The students required to work in group in order to cover every aspects of the project chosen. However, the project must satisfy preconditions given. It is highly preferable for the project to be covered with a group of 5 or 6 students. Each group is given one type of economic system to study. The students can always make use of the publications, mass media or internet service to find the best references to be selected. The course expects the students to gain ethics and new perspectives along the completion of the study. The study of a project will be carried out altogether as a group for a simulation to the students to work in an integrated managing work. The group required to obtain complete information from all aspects regarding the project selected. The information gained would expose to the students about the economic systems The study brings out the students capability to convey their ideas and perspective by producing a writing materials about the project. The project given to the students often complex and fragmented which is involved with a number of parties, therefore by working with this project, students will be able to boost themselves in self- learning capacity with help from references, lecturers and the project organization. Study a project that large in size, potential leadership can be shown in the group for the work to be smoothly done. In a group, cooperation and communication among the students will be tested and will be reflected on the final work. Apart from that, students must practise time management to ensure that the report does not pass due date of submission.

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Our given project is to study one of the economic systems which are Capitalism. In order for the study to be accomplished with no difficulties, we apply the traditional approach to project management. For the first week, we established initiation stage by gather all the group members and consider in details on the guidelines and requirements given by the coordinator course. Grounded by a few must-have characteristics of a project, we began to organizing and managing resources in such a way that these resources deliver all the requirements for the work. Subsequently, we proceeded with planning stage where we cumulate all the gained information for the project selected. The selective information being separated according to the report components. Each of the members being assigned with a few components related. In this stage, we formed a suitable timeline for all the constituents to be completed. For a few weeks of execution stage, a couple of informal gathers between the members was held to reassure that all the works are going as planned. Along the stage period, resources were added to gain accuracy and understanding about the project selected. Within the execution stage, we also combined monitoring and control stage among the members so that the responsible is not pointed only to the leader. On the last week of submission, we undergo the completion stage where a final meeting with all the members took place to compile all the components of the work. At this stage, we check thoroughly on every part to avoid any misapprehension and slip in the work. The final work that approved by all the members will be publish and ready to be send for the course evaluation.

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DEFINITION OF CAPITALISM
An economic system is a way of organizing the relationship among individuals, firms and government agencies on how to make choices when confronted with basic economic questions. The basic economic questions are what to produce, how to produce and for whom to produce. There are three types of economic of economic systems which are capitalism or market economy, socialism or command economy and mixed economy.

Capitalism is an economic system where individuals make all the main economic decisions without any government intervention. Capitalism is also known as free market or laissez-faire economic system. In this market, buyers and sellers will meet and enter into transactions. The forces of market demand supply, without any government intervention, determine how resources are allocated, which known as the working of price mechanism. The price system is the main mechanism for any economic activity.

This economy is characterized as economic freedom, where an individual can be a buyer, seller, employee at his/her own wish and without any government control. In this market, no one is told what to do or how to do it. Everyone is left on their own to do economic decision. Examples of countries practicing the capitalistic economy system are the USA, Canada, Japan and Hong Kong.

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CHARACTERISTICS OF CAPITALISM
There are six characteristics of capitalism, which are private ownership of resources, freedom of enterprise and choice, consumers sovereignty, highly competitive market system, limited government intervention and used the price mechanism system. The first characteristic of capitalism is private ownership of resources. Every individual in the country has a right to acquire private ownership of resources. Individuals are free to own factors of production and use them in whatever manner they wish to. Private individuals or private institutions can own resources. They can accumulate property and use it as they choose. For example, if Jay wants to buy a bungalow in Taman Indah, he can purchase the property if he has sufficient money. Jay can also buy more properties depending on his purchasing power. There is no restriction on the number of properties Jay can own. There is freedom to own private property. However, all governmental laws and regulations must be followed in the process. There are also certain public facilities provided by the government for public usage such as roads, clinics and schools. The second characteristic of capitalism is freedom of enterprise and choice. Individuals are free to own resources as well as to establish any enterprise of their choice. They are free to trade, invest, and organize to produce within the countrys legal framework. All economic decisions are taken by households and firms, which acted on their own interest. Firms are free to choose what to sell, what production method and can freely set up any types of business. For example, if Jay wants to open his own business selling mobile phones, he has economic freedom to operate this business. The third characteristic of capitalism is consumers sovereignty. In capitalism, consumers sovereignty plays an important role. Consumers tastes and preferences will affect the production of goods and services. Producers have to produce goods and services to meet consumers tastes and preferences, otherwise they will unable to sell what they produce.

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The fourth characteristic of capitalism is being highly competitive among producers who aim to obtain the highest profit. When producers compete among themselves, the product will be of high quality and there is also greater efficiency. For example, in the production of shoes, brands such Nike and Reebok are in constant direct competition. In order to attract more consumers, both producers use various marketing strategies to maximize sales of their product. The fifth characteristic of capitalism is limited government intervention. In capitalism, there is very limited government intervention. The countrys role is to stabilize the economic conditions of the country. Role of the government is confined to the national defense and maintaining law and order. The sixth characteristic of capitalism is it used the price mechanism system. The price mechanism is a system used to make economic decisions. Price mechanism means the free operation of demand and supply forces without any intervention. All economic processes of consumption, production, exchange, savings, investment and distribution, work under this price mechanism system, which is labelled as the Invisible Hand by Adam Smith.

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MERITS OF CAPITALISM
Capitalism, as we are aware, is an economy where resources and firms are privately owned in free markets. Normally, this usually involves some government intervention to regulate certain aspects of the economy and protect private property. Merits is something that has good or worthwhile qualities. There are many good qualities of capitalism. The first merit of capitalism is capitalism helps in production according to the needs of consumers. Production produce goods and services that consumers want and this maximizes the needs and satisfaction of consumers. Other than that, economic freedom is also one of the merit of capitalism. Economic freedom means the right to earn and retain property. It also means a freedom of enterprise and a choice of occupations. This will lead to the sourcing of the countrys manpower from different sectors. Therefore, there is flexible functioning of different units of production. Efficient utilization or resources is also another merit of capitalism. Competition creates efficiency in production. On the other hand, quality goods are produced at a lower cost. Therefore, consumers will get the highest quality goods at a lower cost since production techniques are more efficient. Besides that, capitalism worthwhile quality is variety of consumer goods. Competition takes place with regard to all aspects of the product such as shape, colour, design and packaging. Therefore, consumers will enjoy a wide variety of the same product. There is also a variety of consumer goods because of freedom of enterprise, resulting in greater production. Enhanced trade, business, and research and development (R&D) is also one advantage of capitalism. Entrepreneurs or producers are always on the lookout for new innovations to compete with other producers. This will lead to a rapid expansion and an increase in employment and income. Innovators enjoy the benefits of their research through copyright and patents. Capitalism also give advantage in automatic incentives. Capitalism provides encouragement to efficient producers. Efficient producers will benefit from the price mechanism as compared to inefficient producers. FUNDAMENTAL OF MANAGEMENT : WHITE HORSE BERHAD 8

Other than the other six merits of capitalism, flexibility is also another advantage of capitalism. Capitalism provides flexibility that automatically changes with circumstances. For example, during war, the economy will divert its resources to produce more military equipment and when the war is over it will function as a free market.

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DEMERITS OF CAPITALISM
There are six demerits of capitalism which are inequality of distribution of wealth and income, inflation and high unemployment rate, lack of social welfare, unnecessary variety and wasteful competition, misallocation of resources and social costs. The first demerit of capitalism is inequality of distribution of wealth and income. Since there is no government intervention in the market economy, the system of private property widens the gap between the rich and the poor. Those who have wealth can obtain resources and start business while the poor only have their labour to offer. In other words, the rich get richer and the poor get poorer. The second demerit of capitalism is inflation and high unemployment rate. Disparity of demand and supply of labour occurs since it is governed by the invisible hand. Business fluctuations cause high unemployment rates during a depression. The third of demerit is lack of social welfare. In capitalism, social welfare is ignored. Owners do not provide any pension, social security or accident benefits to employees. There is also insufficient provision of social amenities such as schools, hospitals and the like. In this system, undesirable social effects such as theft and crime tend to be high. The forth of demerit is unnecessary variety and wasteful competition. Too much competition leads to unnecessary high costs of production. This is because producers bid a high price for resources as some products are better advertised to attract consumers, resulting in consumers misinterpreting advertisements and being misled. The fifth of demerit is misallocation of resources. A producers objective is to maximize profit and he will, therefore, only products which give higher profits. This will lead to the production of luxury goods (for rich people), resulting in a resulting in a surplus, and a lack of production of goods for the poor. The sixth of demerit is social costs. Workers may face social problems (health problem) arising from the polluted environment caused by an improper disposal of factory wastes. The intention of most producers is to increase private profit and this often leads to a neglect in the welfare of their workers.

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ECONOMIC DECISIONS IN CAPITALISM

What to produce? In capitalism, an entrepreneur will only produce goods and services for which there demand from consumers so as to enjoy higher profits. Production depends on the goods demanded by the consumer. For example, mobile phones have been in high demand in the country for the last few years. Many producers have allocated their resources to respond o this demand and to produce various kinds of mobile phones. How to produce? Firms can produce any product or provide any service using more than one method. The method depends on the relative price of the resources involved. As resources become scarce relative to demand, prices will rise and discourage their usage. For example, a designer of mobile phones has identified three methods of producing the product. The three methods are by machinery, by hand or by a combination of labour and machinery. Only the cheapest method of production and the most efficient techniques will be adopted in the production of phone. For whom to produce? The third economic decision as to who will be receiving goods and services in the capitalism system is answered through the price system. Goods and services are obtained by anyone who can afford them. Goods and services are distributed among the residents of the country. For example, mobile phones are purchased by consumers who are willing to buy them at that selling price.

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