An introduction to the distribution of income in a free market economy

Sources Introduction Peru is located in the central part of South America and borders on the north with Ecuador and Colombia, on the east with Brazil and Bolivia, on the south with Chile and on the west with the Pacific Ocean. Peru is the third largest country in South America after Brazil and Argentina and ranks among the 20 largest countries in the world.

An introduction to the distribution of income in a free market economy

In a market socialist economy, firms operate according to the rules of supply and demand and operate to maximize profit; the principal difference between market socialism and capitalism being that the profits accrue to society as a whole as opposed to private owners. Profits derived from publicly owned enterprises can variously be used to reinvest in further production, to directly finance government and social services, or be distributed to the public at large through a social dividend or basic income system.

In this model of socialism, firms would be state-owned and managed by their employees, and the profits would be disbursed among the population in a social dividend. This model came to be referred to as "market socialism" because it involved the use of money, a price systemand simulated capital markets; all of which were absent from traditional of non-market socialism.

A more contemporary model of market socialism is that put forth by the American economist John Roemerreferred to as Economic democracy.

In this model, social ownership is achieved through public ownership of equity in a market economy. A Bureau of Public Ownership BPO would own controlling shares in publicly listed firms, so that the profits generated would be used for public finance and the provision of a basic income.

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Libertarian socialists and left-anarchists often promote a form of market socialism in which enterprises are owned and managed cooperatively by their workforce so that the profits directly remunerate the employee-owners. These cooperative enterprises would compete with each other in the same way private companies compete with each other in a capitalist market.

The first major elaboration of this type of market socialism was made by Pierre Joseph Proudhon and was called " mutualism ". Self-managed market socialism was promoted in Yugoslavia by economists Branko Horvat and Jaroslav Vanek.

In the self-managed model of socialism, firms would be directly owned by their employees and the management board would be elected by employees. These cooperative firms would compete with each other in a market for both capital goods and for selling consumer goods.

Socialist market economy[ edit ] Following the reforms, the People's Republic of China developed what it calls a " socialist market economy ", in which most of the economy is under state ownership, with the state enterprises organized as joint-stock companies with various government agencies owning controlling shares through a shareholder system.

Prices are set by a largely free-price system and the state-owned enterprises are not subjected to micromanagement by a government planning agency. This system is frequently characterized as " state capitalism " instead of market socialism because there is no meaningful degree of employee self-management in firms, because the state enterprises retain their profits instead of distributing them to the workforce or government, and because many function as de facto private enterprises.

The profits neither finance a social dividend to benefit the population at large, nor do they accrue to their employees. In the People's Republic of China, this economic model is presented as a " preliminary stage of socialism " to explain the dominance of capitalistic management practices and forms of enterprise organization in both the state and non-state sectors.

In Religion[ edit ] A wide range of philosophers and theologians have linked market economies to monotheistic values.

An introduction to the distribution of income in a free market economy

Michael Novak described capitalism as being closely related to Catholicism. But, Max Weber drew a connection between capitalism and Protestantism. The Economist Jeffrey Sachs has stated that his work was inspired by the healing characteristics of Judaism.

Many priests and nuns integrated themselves into labor organizations. Others moved into the slums to live among the poor.

The holy trinity was interpreted as a call for social equality and the elimination of poverty. The Pope was highly active in his criticism of Liberation Theology.

He was particularly concerned about the increased fusion between Christianity and Marxism. He closed Catholic institutions that taught Liberation Theology.Free-market economy refers to an economic system where prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy.

The Soviet Union of the 20th century is an example of a command economy in which the government controlled the distribution of income. Market economies are based on supply and demand and the interactions between buyers and sellers.

However, no truly free market economy exists in the world. For example, while America is a capitalist nation, our government still regulates (or attempts to control) fair trade, government programs, honest business, monopolies, etc. Income inequality in the United States has increased significantly since the s after several decades of stability, meaning the share of the nation's income received by higher income households has increased.

This trend is evident with income measured both before taxes (market income) as well as after taxes and transfer payments. Income . EC Exam 1 Aldridge. STUDY. PLAY. -the government has no way to alter income inequality-the free market produces an unequal distribution of income. in a market economy, the people who receive the goods and services produced are those who.

By studying the determination of factor prices, students gain an understanding of how the market determines the distribution of income and the sources of income inequality in a market economy.

Market Failure and the Role of Government.

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