● Economy refers to the ways people use their environment to meet their
material needs. It is the realized economic system of a country or other area.
● The economy includes the production, exchange, distribution, and
consumption of goods and services of a given area.
● An economy is the end result of a process that involves its technological
evolution, history and social organization, as well as its geography, natural
resource endowment, and ecology, among other factors.
● As long as someone has been making and distributing goods or services,
there has been some sort of economy; economies grew larger as societies
grew and became more complex.
● Capitalism is an economic and social system in
which capital and the non-labor factors of
production or the means of production are
● labor, goods and capital are traded in markets
● profits are taken by owners or invested in
technologies and industries; and wages are
paid to labor
4. How capitalism works
5. Criticisms of Capitalism
● Critics argue that capitalism is associated with the unfair distribution of wealth and power; a
tendency toward market monopoly or oligopoly (and government by oligarchy); imperialism,
counter-revolutionary wars and various forms of economic and cultural exploitation; repression of
workers and trade unionists, and phenomena such as social alienation, economic inequality,
unemployment, and economic instability.
● Critics have argued that there is an inherent tendency towards oligopolistic structures when
laissez-faire laws are combined with capitalist private property.
● Vladimir Lenin argued that state use of military power to defend capitalist interests abroad was an
inevitable corollary of monopoly capitalism.
● Economist Branko Horvat stated, "it is now well known that capitalist development leads to the
concentration of capital, employment and power. It is somewhat less known that it leads to the
almost complete destruction of economic freedom."
● Ravi Batra argues that excessive income and wealth inequalities are a fundamental cause of
financial crisis and economic depression, which will lead to the collapse of capitalism and the
emergence of a new social order.
● Environmentalists have argued that capitalism requires continual economic growth, and will
inevitably deplete the finite natural resources of the earth, and other broadly utilized resources.]
● Socialism refers to various theories of
economic organization advocating public or
direct worker ownership and administration of
the means of production and allocation of
resources, and a society characterized by equal
access to resources for all individuals with a
method of compensation based on the amount
of labor expended.
7. Criticisms of Socialism
● Criticisms of socialism range from claims that socialist economic and political models
are inefficient or incompatible with civil liberties to condemnation of specific socialist
Some have argued that a socialist command economy could not adequately transmit
information about prices and productive quotas due to the lack of a price mechanism,
and as a result it could not make rational economic decisions.
Others haveargued that the social control over distribution of wealth and private
property advocated by socialists cannot be achieved without reduced prosperity for
the general populace, and a loss of political and economic freedoms.
8. Economic measures
● There are a number of ways to measure economic activity of a nation.
– The Gross Domestic Product or GDP of a country is a measure of the size of its economy. While
often useful, it should be noted that GDP only includes economic activity for which money is
exchanged. GDP and GDP per capita are widely used indicators of a country's wealth.
– The Gini coefficient is a measure of statistical dispersion intended to represent the income
distribution of a nation's residents. The Gini coefficient measures the inequality among values of a
frequency distribution. A Gini coefficient of zero expresses perfect equality, where all values are the
same (for example, where everyone has the same income). A Gini coefficient of one (or 100%)
expresses maximal inequality among values (for example where only one person has all the income).
9. Informal economy
An informal economy is economic activity that is neither taxed nor monitored by a
government and is contrasted with the formal economy as described above.
Although the informal economy is often associated with developing countries, all economic
systems contain an informal economy in some proportion.
Informal economic activity is a dynamic process which includes many aspects of economic
and social theory including exchange, regulation, and enforcement.
The terms "under the table" and "off the books" typically refer to this type of economy.
The term black market refers to a specific subset of the informal economy.
Examples of informal economic activity include: the sale and distribution of illegal drugs and
unreported payments for house cleaning or baby sitting.