Resources Allocation in Capitalist and Socialist Systems Like Russia and the USA

2322 Words Feb 16th, 2011 10 Pages
How resources are allocated under capitalist and socialist systems
The case of Russia and the USA

Amanda Carla Montague

Introduction This project evaluates how resources are allocated under socialist and capitalistic economic systems. But firstly, let us define the key terms: economic systems, socialism, capitalism and resource allocation.
An economic system is characterized as all the institutional means through which resources are used to satisfy human wants. By institutions, it is meant the laws of the nation, but also the habits, ethics and customs of its society. Economic systems are artificial in that institutions in an economy are exactly what human beings have made them.
Capitalism is an economic system in
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Producers will be forced (by the discipline of the market-place) to combine resources in the cheapest way for a particular standard of quality. The cheapest way will depend on relative resource prices. Those firms that combine resources in the most efficient manner will earn the highest profits and force losses on their competitors. Competitors will be driven out of business or forced to combine resources in the same way as the profit-makers.
The what and how questions are concerned with production. The for whom question is concerned with the distribution of goods and services after they are produced. In pure capitalism, production and distribution are closely linked because, in the production of goods, incomes are automatically generated. People get paid according to their productivity; that is, a person’s income reflects the value that society places on that person’s resources. Since income largely determines one’s share of the output in pure capital, what people get out of the economic system is based on what they put into it.
An example of a capitalist economy is the United Sate of America. In the USA, supply and demand determine the market prices at which exchanges will take place. Consumers demand what goods and services they want and those with more money than others can obtain more than those who have limited means of payment. Pros and Cons of a Capitalist System
• Capitalism promotes economic growth by providing an open competition in the
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