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

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How resources are allocated under capitalist and socialist systems The case of Russia and the USA

Amanda Carla Montague
9/28/2009

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 which individuals privately own productive resources and posses property rights to use these resources in whatever manner they choose, subject to certain (minimal) legal restrictions. An idealized capitalist system works within the institution of private property that is controlled an enforced through the legal framework of laws, courts and police. Further, such a system is one of free enterprise, where producers freely choose the resources they use in the products they produce. Consumers have freedom of choice also, as do workers and owners in general. Individuals and producers express their desires through the market system, where prices are signals about the relative scarcities of goods, services and resources. The role of government is a limited one. In a ‘pure’ socialist system, the state owns the major non-labour productive resources: land and capital goods. Individuals can own consumer goods and consumer durables, but are not allowed to own factories, machines and other things that are used to produce what society wants. Second, people are induced by wage differentials. However, taxation of large incomes to redistribute income may reduce some of the incentives to produce. Third, the sate determines people’s wage rates and who should be paid what in government-owned and government-operated factories. Fourth, individuals are allowed to enter only certain areas of activity. They cannot, for example, freely set up their own factories. They cannot become entrepreneurs or capitalists, for the state has this function and controls all enterprises. In every nation, no matter what the form of government, what type of economic system, who is running the government or how poor or rich it is, three basic economic questions must be answered. They concern the problem of resource allocation, which is simply how resources will be allocated. As such, resource allocation answers the three basic economic questions of what, how and for whom goods and services will be produced. No matter what the economic system, the fundamental economic problem of scarcity must be solved. Every economic system faces opportunity costs in making decisions. This project will consider the different approaches of the capitalist and socialist economic systems to solving the problem of scarcity.

Table of Contents
Page
How resources are allocated under a capitalist system…………………………………….2 Pros and cons of a capitalist system…………………………………………………………...3 How resources are allocated under a socialist system……………………………………..4 Pros and cons of a socialist system……………………………………………………………6 Main points……………………………………………………………………………………7 Conclusion……………………………………………………………………………………..8 Bibliography……………………………………………………………………………………9

How resources are allocated under a Capitalist System
THE CASE OF THE USA
In pure capitalism, consumers ultimately determine what will be produced by their spending – their voting in the market-place, what they are willing to spend their income on. As far as producers are concerned, their motivation as to what goods are produced is determined by the search of profit. Only those goods that can be produced profitably will be produced. Since resources can substitute for one...
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