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Most economists argue that the free market economy, also known as capitalism, is the best type of
economic system.
What do you understand by the term "capitalism"?
Do you think that the free market is the best system for allocating goods and resources?
Briefly explain what type of economic system you think your country has?
What types of market structures are you familiar with?
Capitalism refers to an economic system in which all economic decisions are made
by individual consumers and firms, without any government intervention (Sloman,
2006). Within this system, there is free decision making by all the parties involved.
Individuals are free to choose what to buy with their incomes and are equally free to
make demand decisions. On the other end, firms are free to choose what they to
produce, what factors they want to employ in production and are also free to make
supply decisions. The interaction of buyers and sellers in free markets enables
goods, services, and resources to be allocated prices. This can be further explained
through one of the most important attributes of the free market system, the price
mechanism.
The demand and supply of a good or service determines the price such that prices
respond to surpluses or shortages. A surplus causes the price to fall. A surplus
occurs when supply is greater than demand (consumers decide they want less of a
good or the firm decides to produce more). As a result, the price falls and forces
firms to produce less due to it being less profitable. As the same time, consumers
will buy more and the price will continue to fall until the surplus is eliminated.
On the other side, a shortage would cause a rise in prices. With a shortage, demand
is greater than supply whereby consumers desire more of a good than is currently
being produced. The rise in price would be incentive for firms to produce more
seeing that it is more profitable and consumers to buy less. The rise will continue to
occur until the shortage is eliminated.
It is because of this price mechanism that it is often said that the free market
system is best for allocating resources. I am in agreement with this position.
References
Sloman, J. (2006) Economics. 6th edn. England: Pearson Education Limited
McGuigan, M, Moyer, R and Harris, F. (2011) Managerial Economics Applications,
Strategy, and Tactics. 12th edn. Ohio: South-Western Cengage Learning
One reason why governments tax petrol, alcohol and cigarettes is to generate
revenue in support of the economy. These are indirect taxes passed on to the
consumer and collected by an intermediary who then remits it to the government.
Another reason why governments could impose taxes on alcohol and cigarettes is to
discourage their use by members of the society. With taxes, the price of the product
increases to the consumer and such demand falls. Governments have a
responsibility to ensure the well-being of the country and its citizens. The dangers of
cigarettes and alcohol are widely known, and this is a method governments could
use to discourage their use.
In Antigua, we do not have a separate tax on these products. However, there is a
value added tax placed on most goods. The introduction of these taxes has been
mentioned in cabinet on numerous occasions, but an actual act has yet to be
passed.