Changes in the world economy, especially after the Industrial Revolution, have created different economic systems of how an economy should be run. Capitalism and socialism are the most common ones and have some similar and different characteristics. (Yakut, 2005)
Firstly capitalism, socialism, and an economic system should be defined in order to explain similarities and differences between capitalist and socialist economic systems.
People have unlimited wants. However, resources are limited. In other words, wants exceed resources. Thus, in order to deal with the scarcity, it is necessary for an economy to be planned. In planning an economy, there are three questions that ...view middle of the document...
Second difference between capitalist and socialist economic systems is freedom of enterprise. In capitalist economies, there is a freedom of enterprise which means the right to own a business. However, in socialist economies, enterprises are owned by the government, not by the individuals. There are barriers created by the government. (Worldfreeinternet, 2008)
Another difference between capitalist and socialist economic systems is that in capitalist economies, goods and services are produced in order to make profit. However, in socialist economies, goods and services are produced to satisfy human wants. For example, bread will be produced in capitalist economic systems to make profit, but in socialist economic systems it will be produced for people to eat. (Arıkan, 2005)
Furthermore, in capitalist economic systems there are two social classes one of which is the capital owners and the other is workers. Change in the classes is only possible by education. However, in socialist economic systems, what is produced is allocated equally between all citizens. There is no class in socialist economic systems because everyone is regarded as equal. (Erdem, 2006)
Moreover, in capitalist economic systems "There is no limit on what a person can earn, he only pays a tax on whatever he earns. In socialist economic systems, however, there is a limit to what you can earn, and the government takes all of the rest." (answers.yahoo.com, 2007)
Another difference between capitalist and socialist economic systems is that in capitalist economic systems one firm can be a monopoly, but in socialist economic systems the government imposes many regulations that determine what the businesses can do and cannot do, which prevents monopolies. (Arıkan, 2005)
Capitalist and socialist economic systems also differ in the determination of the price of the goods and services produced. In capitalist economic systems, the price of the goods and services produced is determined by the market demand and market supply. In socialist economic systems, the price of the goods and services produced is determined by the government. The government sets a price and the goods and the services are sold by this price. (Larousse, 1991)
Furthermore, in capitalist economic systems, unemployment exists in order to control wages. In other words, to prevent wages from increasing, there must be a percentage of unemployed people. However, in socialist economic systems, people who have the possible conditions to work, attend the work life. (Fidan,...