Introduction (Part 2) — Important Questions

Private ownership of means of production, Production for selling in the market, Sale and purchase of labor services at wage rates

A capitalist economy is characterized by private ownership of production means, market-oriented production, and wage labor. Government ownership of all factories and absence of profit motive are not features of capitalism.

Land, Labor, Capital, Entrepreneurship

The four factors of production are land (natural resources), labor (human resources), capital (machines, equipment), and entrepreneurship (organization and risk-taking). Government policies are not factors of production.

Unemployment rose and output fell significantly

During the Great Depression, unemployment in the USA rose from 3% to 25%, and aggregate output fell by about 33%. This challenged the classical view that all workers would find employment.

To earn profits

In a capitalist economy, firms are primarily motivated by profit maximization. They produce goods and services, hire factors of production, and sell output in the market to earn profits.