Capitalism Facts For Kids
There are two main types of economic systems – capitalism and communism.
The simplest way to explain the difference between the two systems is that capitalism allows people to own their own private property or business, and communism is a system where the government controls all businesses.
In reality, even in a capitalist society, there is always some form of government intervention or rules and regulations that have to be followed.
The government has rules against monopolies, sets tax rates, prohibits unsafe work places, sets minimum wages for employees, prohibits discrimination, enforces environmental protection laws, and establishes social security for people who retire.
Today’s Capitalism
Economists will tell you that a capitalist country has a free market.
A business decides what product they want to make and sell and sets the price.
People then decide whether they want to buy the product and if they are willing to pay the price.
At some point, the business may decide to lower its price if their products are not being bought. They can also raise the price if there is a large demand for their products.
This is supply and demand and the government does not interfere.
Government Interference
In a perfect world, the government does not interfere and set the prices for what a company produces. There are some exceptions and one is the ‘quota’.
For some types of farming, such as egg producers, milk producers and some grain crops, the government can set a quota.
This says that the farmer can only produce a certain amount of produce for sale.
The farmer has to buy the quota from the government and abide by the rules set down.
For example, if the dairy farmer has purchased a quota to produce 1000 lbs. of milk per week, he can only sell 1000 lbs. per week.
Anything above that has to either be fed to his pigs or thrown out. The quota system prevents some farmers from flooding the market and destroying the price of milk.
Related: Supply and Demand Examples
Benefits of Capitalism
Private ownership is allowed. Competition is allowed, in fact, encouraged.
With competition, companies and individuals cannot control one aspect of the economy.
People are free to buy what they want if they have the money.
Everyone in a capitalist society is free to vote for whatever party they choose.
Everyone can strive for a better standard of living. They have the opportunity to better themselves, go to school, get training and apply for jobs.
Success depends on a person’s ingenuity and willingness to work. A capitalist society has a good standard of living, good schools, good hospital care, and looks after the elderly and the homeless.
It’s not perfect though, and there are areas that will always need improvement.
Quiz Time!
QUESTIONS
What is the simplest definition of capitalism?
How is the government involved in a capitalist country’s business?
What is a free market?
What good is competition?
What does a quota do?
ANSWERS
Capitalism allows people to own their own property or business.
A government in a capitalist society has rules against monopolies, tax rates, prohibits unsafe workplaces, sets minimum wages, prohibits discrimination, enforces laws, and establishes social security for people who retire.
A business decides they want to make and sets the price and buyers can decide whether they want to buy the product and if they are willing to pay the price.
Competition stops one person or one business from having a monopoly.
A quota stops one producer from flooding the market and destroying the price.
Money & Economics
