Economics Assignement sim

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ADDIS ABABA UNIVERSITY

ADDIS ABABA INSTITUET OF TECHNOLOGY

ELECTRICAL AND COPMUTER ENGINEERING

DEPARTMENT

Course title: Introduction to Economics

Course no:Econ 2011

Assignment on

Capitalist economy

Done by Group 4

Sub. date APPRIL/22/2012


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Group Member List

Full name id no.


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Introduction to EconomyEconomics is the study of complicated tables and charts, statistics and numbers, but, more specifically, itis the study of what constitutes rational human behavior in the endeavor to fulfill needs and wants.Example, you face the problem of having only limited resources with which to fulfill your wants andneeds, as a result, you must make certain choices with your money.

You'll probably spend part of your money on rent, electricity and food; then you might use the rest to goto watch the movies and/or buy a new pair of cloths. Economists are interested in the choices you make,and inquire into why, for instance, you might choose to spend your money on a home appliance likeelectronics, foods clothes etc. The underlying essence of economics is trying to understand how both

individuals and nations behave in response to certain material constraints.We can say that economics is a study of certain aspects of society.To study these things, economicsmakes the assumption that human beings will aim to fulfill their self-interests. It also assumes thatindividuals are rational in their efforts to fulfill their unlimited wants and needs. Economics, therefore, isa social science, which examines people behaving according to their self-interests.

The definition set out at the turn of the twentieth century by Alfred Marshall, author of "The Principles Of

Economics" (1890), reflects the complexity underlying economics: "Thus it is on one side the study ofwealth; and on the other, and more important side, a part of the study of man."The ancient economies suggest that many systems were attempted, but the profession of empiressuggests that the rule of powerful elite was the most successful in the early going. The history ofeconomic thought is the science that concerns itself with economies, from how societies produce goodsand services, to how they consume them. It has influenced world finance at many important junctionsthroughout history and is a vital part of our everyday lives. The assumptions that guide the study ofeconomics have changed dramatically throughout history. In this article, we'll look at the history of how

economic thought has changed over time, and the major participants in its development.


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The History of Capitalism

The roots of what are now commonplace activities such as buying stocks, bonds, and even things like

applying for a loan or balancing a portfolio is the evolution of the various economic systems that have

supported them. The development ofeconomics across time and continents is neither uniform, nor

complete. This article will focus on the systems that have led to our current Wall Street arrangement.

In the black hole known as prehistory, humans established a complex system of community that includes

elements of labor, reward and trade. This eventually included the domestication of plants and livestock,

furthering the scope of tradable goods as well as tying people to the land so economies could develop. The

uneven development of ancient economies suggests that many systems were attempted, but the profusion

of empires suggests that the rule of powerful elite was the most successful in the early going.

The spaces between Empires that most telling fact about humanity in the ancient world is that when the

external controls of a ruler were removed, people reverted to subsistence farming. Although there is only

one official dark age in the history text, the disconnected ancient world used to go through dark ages

much like the blackouts and brownouts that ripple across energy hungry states. In these dark areas, the

people went back to securing enough food for themselves and surviving until the next powerful figure

came along to claim them as his own.

Feudalism

Up until the 12th century, less than 5% of the population of Europe lived in towns. Skilled workers lived

in the city but received their keep from feudal lords rather than a real wage, and the farmers were

essentially serfs for landed nobles. It took the Black Plague, one of the most devastating pandemics in
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human history, to shake up the system significantly. By killing scores of people in both town and

countryside, the various plagues of the dark ages actually created a labor shortage. Nobles fought to hire

enough serfs to keep their estates running and many trades suddenly needed to train outsiders, as entire

guild families were wiped out. The advent of true wages offered by the trades encouraged more people to

move into towns where they could get money rather than subsistence in exchange for labor. As a result of

this change, birth rates exploded and families soon had extra sons and daughters who, without land to

tend, needed to be put to work. Child labor was as much a part of the town's economic development as

slavery was part of the rural life.

Mercantilisms

Mercantilism is now known as an attempt to create trade imbalances between nations, as well as between

colonies and their imperial rulers, so that one nation prospers at the cost of others. The word

mercantilism also has a less known usage, which simply means the principles and methods ofcommerce.

Mercantilism started as trade between towns, but it was not necessarily competitive trade. Originally,each town had vastly different products and services that were slowly homogenized by demand over time.

After the homogenization of goods, trade was carried out in wider and wider circles: town to town, county

to county, province to province, and, finally, nation to nation. When too many nations were offering

similar goods for trade, the trade took on a competitive edge that was sharpened by strong feelings of

nationalism in a continent that was constantly embroiled in wars.

Capitalism

During the age of colonialism and mercantilism, the nations seeding the world with colonies were not

trying to increase their trade. Most colonies were set up with an economic system that smacked of

feudalism, with their raw goods going back to the motherland and, in the case of the British colony in

America, being forced to buy the finished product back with a pseudo-currency that prevented them from

trading with other nations. It was Adam Smith who noticed that mercantilism was not a force of

development and change, but a regressive system that was keeping the world from advancing; his ideas

for a free market opened the world to capitalism.

Industrial Capitalism Adam Smith's ideas were well timed for the world, as the Industrial Revolution wasjust starting to cause that would soon shake the world. It was becoming apparent that colonialism wasn't

the gold mine that the European powers thought it would be. Fortunately, a new gold mine was found inthe mechanization of industry. As technology leaped ahead and the factories no longer had to be builtnear waterways to function, industrialists began building in the cities where there were now thousands ofpeople to supply ready labor. Industrial tycoons were the first people to amass their wealth in theirlifetimes, outstripping both the landed nobles and many of the money lending/banking families. For thefirst time in history, common people could have hopes of becoming wealthy without being born into it, thenew money crowd was as rich as the old money crowd, but they had no interest in the statuesque. Theybuilt more factories that required more labor while also producing more goods for people to purchase.Industrial capitalism was the first system to benefit all levels of society rather than just the noble class.Wages increased, helped greatly by the formation of unions, and the standard of living also increased withthe glut of affordable products being mass-produced. This led to the formation of a middle class that
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began to lift more and more people from the lower classes to swell its ranks. All over the world, capitalismgrew beyond pure industrial capitalism into forms more palatable to the region it settled. The U.S. raisedone of the purest types of capitalism with a minimum of government regulation, while Canada and theNordic countries created a balance between socialism and capitalism. It took a long time to get here, butcapitalism is here to stay. As the world becomes more globalized, it is likely that countries who haven't yetadopted this system will jump on the bandwagon as well.Generally capitalist economy

An economyin which each person has the right to invest money, to work in business, and to buyand sell,

with no restrictions from the state

1. The sum of a corporation's long-term debt, stock and retained earnings, also called invested capital.

2. The market price of an entire company, calculated by multiplying the number ofshares outstanding by

the price per share ,here also called market cap or market capitalization.

Examples of capitalist countries are:-

Capitalism is an economic system and not a political system; however, the vast majority of countries (almost all liberal

democracies and most authoritarian systems) in the world use capitalism as their dominant economic system,

including the United States, Canada and Mexico, all of the 27 countries of the European Union (Ireland, UK, France,

Portugal, Spain, Belgium, The Netherlands, Luxembourg, Germany, Italy, Sweden, Finland, Denmark, Malta, Cyprus,Austria, The Czech Republic, Slovakia, Poland, Hungary, Slovenia, Romania, Bulgaria, Latvia, Lithuania, Estonia and

Greece), as well as many, many other countries (such as Australia, Japan, India, Egypt, Tunisia, Indonesia, New

Zealand, South Africa, Switzerland, Botswana, Brazil, Colombia, Chile, Peru, Russia, Turkey etc. etc.). Even some

countries which in-name follow different economic systems (such as China, claiming to have a "communist economy

with Chinese characteristics") are capitalist (i.e. have most of the output coming from industries in private property

trading and setting prices on a free market by the laws of supply and demand, and have a legal framework geared to

protecting and encouraging such a system of production). It is actually easier to count countries that are not capitalist

(such as North Korea, Cuba or most of Vietnam), or still have some way to go until ancient economic structures make

way for capitalism .World trade overall, and the international economy is capitalist are:-

The United States of America.

Brazil

Japan

SudanSweden

Colombia
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society suffers. The fact that individuals are driven to succeed is in all our interests.

3. The guiding hand of government is too strong in a socialist system; it means that change is slow which means thatinnovation is missed. This isnt just pro-business, it has real effects on the lives of citizens people are poorer because of it.

In a capitalist system, economies are diverse enough that when problems happen in one sector, others are often insulated

by their differences. In a socialist system, where everything is centrally controlled and diversity is nonexistent, when

government gets things wrong, everyone suffers. Ultimately, socialist systems are so inefficient and corrupt that labor has to

be forced for the state to continue functioning though this may also be a logical outcome of thinking less of the importanceof individual freedoms compared to some abstract communal good.

The failure and other command economies shows the poverty of socialism and the failure of central planning, as on a

smaller scale does the failure of nationalized industries in many western countries.

4. In capitalism, the market determines price, including pay, the price of labor. If some people are paid huge sums that arebecause other people believe they have unique talents which are worth paying for. If they fail to perform, then they will stop

being rewarded so highly. This is all part of a dynamic capitalist system which values individuality and rewards ability and

risk taking.

In any case capitalism isn't monolithic system capitalism can have elements of control in it. After all, taxation is a capitalist

creation and almost all capitalists accept a role for state regulation to prevent market rigging and to help those in absolute

poverty.5. In capitalist systems, society is ruled by the individual. Who would want to live any other way? In socialist systems, society

is ruled by the state.

6. Competition yields better products and more efficient processes in all fields of man's activity. Whilst it is true thatmonopolies sometimes form, these are combated by regulatory methods like monopolies commissions .So capitalism

actively tries to stop monopolies. On the other hand, monopolies are inevitably a part of every aspect of activity in socialist

systems the monopoly of the state.

7. Socialism cannot protect human rights because it seeks the good of the people in the abstract. This means that socialistgovernments feel justified in overriding individual rights, sometimes resulting in great injustices and even atrocities.

Examples of this range from the compulsory purchase or confiscation of land or businesses by the government, the forced

relocation of people, controlling labor so that the individual cannot choose their own employment, through collectivized

agriculture and fertility policies either putting pressure on women to have many children or a one child policy, to themisuse of the justice system to persecute political opponents who might "threaten the socialist project".

Cons of capitalist economic vs other

1. The wealth of the earth belongs to all men or to none. Under capitalism, property is concentrated into the hands of relativelyfew well off people, leaving the many with nothing and at the mercy of the rich for work, charity, etc. This leads to gross

inequality, exploitation and misery. Nor is it economically efficient, as the rich have so much already they have no incentive

to use their land productively. Socialism seeks to redistribute wealth and to ensure that the means of production are at the

service of the whole of society, so that all can benefit and none will go without.

2. Many could be motivated to work by a wish to aid their fellow man. Over time, as the benefits of this better way of lifebecome obvious, all will. The impulse to share wealth and material amongst the community, to support all, leaving none

behind, is one of the purest mankind can experience. It is not merely possible it is a demonstration of the progress of ourspecies to a finer, more humane state of being.

3. Capitalism rewards people in perverse ways. Wealth is concentrated in the hands of the few. The rich get richer, the poorget poorer. The poor are fooled into thinking that they can gain in capitalism, when really all their wages do is hold them in

place their savings are swept away in the first moments of unemployment, a concept central to capitalism but one that

socialism destroys.

4. Economies in capitalist systems are essentially unplanned, so they often crash, producing depressions that damage thelives of millions. Socialist economies are planned, which means that problems can be foreseen and prevented. Ultimately,


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socialism guides with the aim of human happiness in mind, rather than the glorification or gratification of a particular

individual or class. To gain this for all rather than just for some requires an element of social control the excesses of

capitalism will forever mean that too many fall by the wayside as the strong profit, and the weak are left behind.

5. In socialist systems, society is ruled by the people. In capitalist systems, society is ruled by money.6. It is false to say that capitalism secures competition automatically. As everyone knows, monopolies are often formed under

capitalist systems. Capitalist monopolies are pernicious they mean that individuals profit obscenely as they can charge

exorbitant costs, since citizens cannot obtain services anywhere else. On the other hand, socialist monopolies are benign

since the state has the interests of citizens at heart, rather than the enrichment of a particular person.

7. Capitalism may use the language of human rights, but it only really respects the right of the weak to starve in the gutter,and the right of the strong to keep them there. Socialism understands rights more widely and fully, and provides for the

right to work, the right to an education, and to health care free at the point of use. It cannot be right for a few individuals to

block the progress of all towards these great goals.

Case in Ethiopia Economic

UnderHaile Selassie I(reigned 193074),sought to modernize his country and who steered it into the mainstream of post theLeague of

Nations and theUnited Nationsand madeAddis Ababathe major centre for theOrganization of African Unity . Ethiopias economy enjoyed a

modicum of free enterprise. The production and export of cash crops such as coffee were advanced, and import substituting

manufactures such as textiles and footwear were established. Especially afterWorld War II, tourism, banking, insurance, and

transport began to contribute more to thenational economy.

The communist Dreg regime, which ruled from 1974 to 1991,nationalizedall means of production, including land, housing, farms,

and industry. Faced with uncertainties on their land rights, the smallholding subsistence farmers who form the backbone of

Ethiopian agriculture became reluctant to risk producing.

Ethiopia has recorded seventeen years of economic stagnation under the leadership of The Dreg, a military government. For example,in 1990/91, the growth rate of the Ethiopian Gross Domestic Product (GDP) was 3.2 percent, cyclical unemployment was about 12percent, the rate of inflation was about 21 percent, and the countrys budget was at a deficit of 29 percent of GDP. For the last fiveyears, contemporary Ethiopia has gathered momentum by recording a steady economic growth. Along with this growth, however, thecountry has seen an accelerated, double digit increase in the price of goods and services. Thus, inflation has remained a scourge ofthe Ethiopian economy.

Ethiopia at this juncture is faced with an overheating economy. With the global soaring price of oil, wheat, corn, and minerals, thiscondition cannot be regarded as unique to the Ethiopian situation. What makes this a special case is that Ethiopia is a low incomecountry. The increase in National Consumer Price Index the main gauge of inflation has become very detrimental to the low incomegroups and retirees who live off a fixed income. The risk of inflationary pressure is reducing purchasing power of the Ethiopian birr.Given that a large portion of countys population lives in absolute poverty less than one dollar per dayin come it is time that theregime in power identifies the salient factors that might be contributing to inflation in Ethiopia.

The focus is inflationary pressure in Ethiopia.

1. The section discusses the theoretical frameworks that are believed to be the causes of inflation in developing countries.2. Provides some suggestions on how policymakers may control the current inflationary pressure in Ethiopia and prevent the

resurgence of inflation at a minimum cost in terms of output loss.
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