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4 Of The Biggest Differences Between Capitalism And Communism

The death of Fidel Castro has given investors a renewed sense of optimism about the future of U.S.-Cuba relations. The Herzfeld Caribbean Basin Fund, Inc NASDAQCUBA is trading up by more than 12.5 percent in Monday’s session.

Most Americans are aware that Cuba has a communist government. However, the economic distinctions between the U.S. capitalist structure and Cuba’s communist structure may not be so clear.

Here’s a look at four ways capitalism and communism are different.

1. Factors Of Production

Factors of production is an economic term for the elements required to produce goods and services. These factors include land, labor and capital. In a capitalist economy, factors of production are owned by individuals. In a communist economy, the factors of production are owned by the government.

2. Production Decisions

In a capitalist economy, production is determined by free market forces such as supply and demand. In a communist economy, the government determines which goods and services get produced and how much is available at any given time.

3. Prices

When the government controls supply and demand, it also controls prices. Prices are set by market competition in a capitalist economy. In a communist economy, the government sets the prices for goods and services.

4. Resource Allocation

In a capitalist economy, successes and failures (profits) of individuals and companies determine the allocation of resources. In a communist command economy, the government determines resource allocation. These decisions are typically made based on macro-economic and/or political considerations.

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Image Credit: By Gastón Cuello (Own work) [CC BY-SA 4.0], via Wikimedia Commons

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