Global environment

Executive summary

The paper discusses different types of economic systems (like socialism, state economy, and other economic systems), assesses how each economic system attempts to allocate resources effectively, explains the UK government policies (namely monetary, fiscal, social, and competitive policies) and assesses the impact of all the above-mentioned policies on a chosen UK based organization. The paper describes market structure types (namely, perfect competition, monopoly, monopolistic competition, and other market structures. Finally, the paper explains how market structures determine the pricing and output decisions of businesses.

P4: Explain how economic systems attempt to allocate resources effectively

Throughout the history, the term capitalism has been closely associated with other related notions, including: market capitalism, laissez-faire (pure capitalism), economic liberalism, private enterprise etc (Kumar 1978). Capitalism transformed feudalism in the Western world, namely Britain, from where it had flourished throughout Europe predetermining economic, cultural and political developments of the then society.

Later on, over the 19th and 20th centuries, capitalism formed the grounds of industrialization (Saunders 1995). Nevertheless, namely the eighteenth century became crucial in the foundation of capitalism concept after the first economic school was established in Britain. The school has produced much of the fundamental thought in the field of classical political economy supported by the invaluable contributions of David Ricardo, Adam Smith, John Stuart Mill, and Jean-Baptiste Say et al who thoroughly researched various ways goods were produced, distributed and exchanged under market conditions. Namely, those classical thoughts have set the foundations of the contemporary perception of capitalism (Skousen 2001).

During 1930-s, John Maynard Keynes had a tremendous influence on the notion of capitalism and the role of monetary policy. The British economist emphasized on the important functions of monetary policy within economic policy. In his The General Theory of Employment, Interest, and Money 1937 he argued that capitalism was not able to fully recover from the slowdowns in investment (Burnham 2003).

Keynes claimed that the economic mode particular to the capitalist society could sustain its indefinite equilibrium even in spite of high unemployment. At that, during the 1930s Keynesian approach to economics assumed that laissez-faire capitalist economics was self-sufficient and did not need any intervention from a state to cut down unemployment or boost aggregate demand.

Furthermore, Keynes suggested ‘pump-priming’ approach to save the economy from recession in the period of economic down-turn, which involved increase in government borrowing and spending as well as cutting-down taxes. In such a way, Keynes put forward his idea of cutting real wages through the system of their control from the state and deterring from holding money during inflation (Erhardt n.d.). This indicates that Keynes much favored state regulation as an effective tool to eliminate economic slowdown. Actually, Keynesian policies enabled the capitalism recovery afterwards the state of the Great Depression (Friedman 1970).

The contemporary academic research on the concept of capitalism is largely grounded on neoclassical economics and the relevant approaches developed by the Chicago School. The modern perception of capitalism therefore favors neutral government regulation and coordination of markets with the focus being placed on property …
Posted by: Thersa Reale

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