Essay about A Note On Capitalism And Economic Decisions

1113 Words Sep 14th, 2015 null Page
The book is composed of thirteen chapters and epilogue and economist talks about capitalism and economic decisions in detail. The first chapter (The Power of Markets) says the economy is study that helps us to make the most out of our lives. People want to maximize utility by decreasing costs and increasing demand. The market economy directs resources to the point where they can maximize productivity. Firms also attempt to maximize profit by taking raw materials and adding values and to make the most money in the long run by finding the optimal balance between price and output. While trying to maximize profit, we improve overall well being of society. Some markets have barriers to entry like monopoly. In fixed-price market systems, each firm tries to be outstanding in order to earn more money than other firms. The second chapter discusses about “Incentives Matter.” Free rider problem occurs when the firm invests heavily that benefit the entire industry while other firms in the same industry suffers. When we benefit from worker like having incentives, we work harder. Perverse incentives are related to the law of unintended consequences. Government tries to minimize the pain/loss in the competition and intervenes in it. This slows down the creative progress in the market economy. The government imposes tax on certain things to help disadvantaged people but this system also discourages productive firms to leave the market. This often creates dead weight loss. Lastly,…

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