(a) Define capitalism. (b) State two advantages and two advantages of capitalism.

Answer Details

(a) Definition of capitalism

Capitalism is an economic and political system in which the means of production and distribution (land, capital, factories, banks and businesses) are owned and controlled by private individuals and companies rather than by the state, and in which production is carried on for private profit. It is based on private ownership of property, the profit motive, free enterprise, competition and the operation of market forces of demand and supply (the price mechanism), with only limited interference by government.

(b) Two advantages and two disadvantages of capitalism

Advantages:

1. Efficiency and higher productivity: The profit motive and competition encourage hard work, efficiency and the best use of resources, leading to increased production of goods and services.
2. Individual freedom and initiative: It allows freedom of enterprise and choice, so that people are free to own property, start businesses, choose their occupation and spend their income as they wish; this encourages initiative, innovation and invention.

Disadvantages:

1. Unequal distribution of wealth: Capitalism concentrates wealth in the hands of a few, widening the gap between the rich and the poor and creating social injustice.
2. Exploitation and neglect of social welfare: The pursuit of private profit can lead to the exploitation of workers and consumers, and essential but unprofitable services may be neglected, while economic instability such as unemployment and periodic depressions may occur.