Discuss the principles underlying components of the American system of free enterprise, otherwise known as capitalism. Include a discussion of capital, markets, entrepreneurs, corporations, and limited liability. How does capitalism differ from communism?

Question

What will be an ideal response?

Answer 1

The ideal answer should include:
1. Capitalism is characterized by private ownership of the means of production.
2. The central social institutions of capitalism are markets which regulate the worldwide flow of an extensive array of goods and services.
3. Capital refers to both the money used to purchase resources (e.g., raw materials) and the physical assets (e.g., buildings and equipment) used to produce goods and services.
4. An entrepreneur is a capitalist who creates a new business venture.
5. Formation of a corporation is one major way of minimizing risk. Corporations are chartered by governments to conduct business with limited liability to the owners of the business.
6. Limited liability means that only the assets of the corporation are liable to seizure in the case of economic failure or wrongdoing.