The Nature of an Economy
-Social organization of society which produces/distributes economic goods. Modern economies are complex.
-Four functions of economy. Determine kinds of goods to be produced. Determine amount of each good to be produced. Determine resources allocated to a good’s output. Determine ultimate division of goods.
The Great Economic Problem Facing Modern Societies
How can scarce resources satisfy as fully as possible the ever-expanding wants of all members of a society? Economizing. Allocating.
Evolution of Economic Systems.
-Feudalism(some free workers/traders)
-Mercantilist system(government controlled)
-Market economy (laissez faire capitalism)
-Pragmatic market economy (modern).
Influence of Socialism
-Socialism developed in mid-1800s in reaction to problems caused by non-regulated market economy. Utopian socialists promoted peaceful change. radicals such as Marx & Engels proposed revolt against organized social structure.
-Soviet-style socialism: government makes decisions about allocation/distribution of goods.
-Communism: a type of Soviet-style socialism. Communist Party plays key role. Includes key political beliefs from communist writers. Sees capitalism as doomed.
-Socialistic government: government owns means of production, promotes income equalization. Many forms of socialism.
Planned and Unplanned Economies.
-Unplanned economies rely on markets to control economic decisions United States. Western Europe.
-Planned economies rely on government. Former Soviet Union. China.
How Does a Market Economy Work?
Market economy is an economic system relying on the initiative of private citizens for production of economic goods.
-No production quotas by government.
-Prices/profits not set by government.
-Chief incentive is profit.
-In practice, government regulates to some degree, provide legal framework.
Modern Economies are Pragmatic Market Economies.
-Few differences between modern planned and unplanned market economies.
-Pragmatic market economies. Use markets as a central way of allocating resources. Regulate and control those markets. Change market outcomes to varying degrees.
All modern economies are pragmatic market economies.
-Government involvement to some degree.
-Pragmatism is driving force. Differ only by institutional/historical settings.
Affects how government interacts with market.–In China, citizens expect government to step in.
—In United States, reliance on “rule of law” to limit government.
Adam Smith’s term for the market forces of free competition.
System in which tradition ruled, and most people were peasants tied to the land and their lord.
Desires for things that can be obtained by labor or through exchange.
Relies primarily on a government-controlled production and distribution system.
Price at which demand exactly equals supply.
The study of the social organization through which people satisfy their wants for scarce goods, including services..
Autocratic or state socialism in which a central party determines society’s goals.
Relies primarily on the market to control economic decisions.
Economy in which both the market and government determine how goods are produced and distributed.
Focuses on the study of the aggregate economy, the economy as a whole.
System that increased the power and monetary wealth of nations.
Factors of production
Human and non-human resources used to produce material goods.
Amount of a product that people are willing to buy at a given price and time.
Making the best use of the resources employed.
Free enterprise economy
Economy in which government plays no part at all.
The integration of world economies.
Productive equipment which includes tools, machines, factory buildings, etc.
Economic system under which society as a whole takes the primary responsibility for producing and distributing economic goods.
Land, raw materials, water, etc., that are the basis of all the material products that humans make.
Shows the amount of a product buyers would be willing to purchase at different prices at a given point in time.
Efforts of human beings.
Shows the amount of a product sellers would be willing to offer at different prices at a given point in time.
Focuses on the economic decisions facing individuals.
Shifting of jobs from the U.S. to lower-wage developing countries.
Economic system in which the government makes decisions about the allocation and distribution and goods.
Social organization by means of which the people of a given society produce and distribute economic goods.
Things that money can buy and that are the objects of our economic wants.
System that relies on the initiative of private citizens for the production of economic goods.
Economic system based on private property, markets, entrepreneurial initiative, and the ownership of the means of production by the private sector of the economy.
Material economic goods.
Allowing the market to operate with minimum government regulation.