Factors or characteristics of Capitalism

by • 09/06/2011 • B.COM PART 1 Introduction to BusinessComments (0)702

Q 2- What do you know of open market economy/ Capitalism/ Business under private Ownership?


What are the factors or characteristics of Capitalism?


Capitalism is that economic system in which capital moves freely in society and finds its way to production and distribution in the private sector with the minimum interference of the government. Its all factors of production are in the private sector.



Capital moves freely in the society and makes its way in industries , business, services, production all of which are in the private sector. It focuses on private investment and is an essential factor of production.


It is the main motivating factor for which an organizer establishes his business. Profit after paying taxes is owned by the owner and the government has nothing to do with it. Profit is the difference between expenses and income.


Interest is the base for capitalism. It is the return on capital provided by the capitalism. In Islamic economy and socialism interest has no place.


Competition is one of chief characteristics of open market economy. Every one has opportunity to jump in a legitimate business he likes. The fields of production and distribution of goods and services are open to all. Competition is a blessing in disguise for producers and sellers in the long run.


Prince is determined in line with demand and supply. Higher demand brings the prices at higher level, and increase in supply depresses the prices.


Wages are determined on demand and supply. If labor is abundant wages are competitive; scarce labor, on the other hand, yields higher wages.


Organizer is known as proprietor, partner, or shareholder all of whom belong to private sector. They are independent in doing their business, formulating policies and enjoying profits. The organizer is one of the four factors of production, other being capital, land and labor.


Production is the creation of place, time, form, and possession utilities. Its objective is to convert good and services from on form to another to provide utility to the consumer. Production includes manufacturing, fishing, agriculture, mining and drilling.


It refers to selling the goods and services. Goods and services must be sold after they are produced. It helps buyers and sellers meet each other. Goods reach consumer either directly or through various channels, as wholesaler, retailer, agents etc, who are known as middlemen.

  • RISKS:

In a business risk always exists, especially when the business is in the private sector. Risk involves price fluctuations, change in customer likes and dislikes, failure of a product, change in fashion, invention and innovations, and competition.


In a capitalistic economy consumer is the king. Of the consumer, for the consumer, and by the consumer are the parts of the marketing strategy. Here, the producer tries his best to provide maximum satisfaction to his customer.


Entrepreneur  or organizer is one of the factor of production as discussed above. He invests capital in the business, acquired land, hires manpower and conducts business for profit.


For capitalism the best government system is democracy where all institutions and corporation may be held accountable to the representative of the people. Under this system evils of capitalism may be controlled to some extent.


The special characteristics of capitalism is the existence of joint stick company which is established with the capital subscribed by the public. The company is run by a group known as board of directors elected by shareholders.


Class conflict is inherent in capitalism, and consequently the society is divided into two rival classes. Privileged class verses unprivileged, rich and poor, middle and working class are always at odds with each other creating unrest in the society.


Business corporation are free to advertise their goods and services to promote their sales and penetrate the Markey. Advertising educates the consumer and increases the consumption that pushes the production up creating more jobs.

In other words , advertising is a useful tool in the improvement of the economy.

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