Introductory economics and finance - Essay Example

In USA, almost two thirds of the total production is consumed by the individuals for personal use whereas only one third is consumed by the governments. The free enterprise believes that the private ownership is the best form of the economy because it is able to operate more competently than its counterpart. They believe that when the economic forces are free to act, the supply and the demand of the product intersect to arrive at a competent price. At the same time, this intersection of demand and supply predicts the quantity of production.

When the consumers demand more of a product then the economy is producing, the price of the respective good increases. This chance for profitability calls in for more organizations to produce the similar good. At the same time, when the supply of the good in the economy is more than the demand, the price falls as a result. Most of the organizations exit due to the decreasing profitability. Therefore, the market economy operates efficiently following the market forces and reflecting on the wishes of the people (Samuelson, 1998).

But there is too much freedom with no regulations that causes the problems and does not make it s viable form of economy for the allocation of resources. On the other hand, the socialist economy is more portrayed by the high state ownership and central planning. The economists believe that this form of the economy is less efficient because it does not reflect on the market forces or the price changes. In this form of economy, the means of the production are owned by the state and the workers.

It focuses on ones capacity to produce and wants. Basically, it aspires to provide for more equitability in the economy (Samuelson, 1998). With no economic benefit to the individuals, the people are less efficient and unstable. It also breeds incompetence in the economy that will cause it lose in the long. At the same time, the state benefits call for unannounced immigrants and cause stagnation in the economy.