Chapter 3: Economic Systems: Capitalism versus Socialism
Government
A decision-making institution with the legal authority to impose restrictions or mandates on the behavior of other decision makers (the ability to use legal coercion)
Contract
A legal document which specifies what different parties must do, whatever the external circumstances, and provides enforcement or compensation for non-performance
Laissez Faire
Abstention of governments from interfering in the workings of the free market
Indicative Planning
An capitalist environment in which the government guides the behavior of individuals in regards to economic decisions by establishing policies which alter costs and benefits (referee)
Communism
Economic system in which the means of production are collectively owned by all people in a society (without intervention by a government of state)
Socialism
Economic system in which the means of production are owned by the government (not everyone is equal). Has communism, a Command system, and a Centrally planned system.
Capitalism
Economic system in which the means of production are privately owned and operated for a profit. Has a free market system, free enterprise, decentralized system, Laissez Faire, Ownership- Limited and Private.
Four Primary Economic Institutions
Households, firms, markets, and government
Natural Assets
Natural resources, including minerals, naturally occurring vegetation, water resources, topographical features, and available agriculturally productive land
Three Dimensions of Private Ownership of Property (Capitalism)
Right to control- the right to decide how to use your property. Right to transfer- the right to obtain ownership of property from or relinquish ownership of property to another person. Right to restitution- the right to be compensated by another person when he damages your property or infringe upon your rights
Negative Rights
Rights not to be interfered with but everyone else has the same right too.
Decentralized System
no single centralized authority that makes decisions on behalf of all the parties
Bourgeoisie
the term which Karl Marx used to refer to as business owners
Command System
where the socialist government, rather than the free market, determines what goods should be produced, how much should be produced and the price at which the goods are offered for sale.
Centrally Planned System
00:00 00:00 What is a 'Centrally Planned Economy' A centrally planned economy is an economic system in which the state or government makes economic decisions rather than the interaction between consumers and businesses. Read more: Centrally Planned Economy https://www.investopedia.com/terms/c/centrally-planned-economy.asp#ixzz56GqFpEjL
Adam Smith
18th century(1721-1790) Scottish economist, who wrote "An Inquiry into the Nature and Causes of the Wealth of Nations," in which he laid out the central arguments for why private ownership/control of resources and trade in free markets often result in desirable outcomes
Karl Marx
19th century (1818-1883) German philosopher, economist, and revolutionary, who wrote "Das Kapital" (1867, 1884, 1885) and co-wrote (with Friedrich Engels) "The Communist Manifesto" (1848)
Invisible Hand
Smith's recognition that under certain conditions, the behavior or self-interested decision makers interacting in free markets leads to outcomes which are better for all parties (a win win situation). Everyone does what they are supposed to and it results in the most efficient outcome with total social surplus.
Market
The collection of all potential buyers and all potential sellers of a good or service
Produced Assets
The currently available machines, factories, and inventories of finished goods available as industrial capital, as well as social capital such as transportation and communications infrastructure, and educational institutions
Consumer Sovereignty
The freedom for an individual to choose to purchase (or not to purchase) a good or service at a price determined in a free, unfettered market
Economic Resources or Factors of Production
The inputs such as factories, farms, stores, trucks, and equipment used to produce goods and services
Firms
The institutions which transform factors of production into finished goods/services
Households
The most fundamental part of any economic system; ultimate consumers of most finished goods/services; primary suppliers of labor
Economic System
The rules and methods put in place by a society to answer the three fundamental questions of "What to produce?," "How to produce it?," and "For whom to produce it?"
Human Capital
The skills, education, and training which individuals in the labor force possess
Comparative Economic Systems
The subfield of economics that compares and contrasts the structure and the performance of different types of economic organization (different econ systems)
Proletariat
The terms which Karl Marx used to refer to the working class
Mixed Economy
an economic system in which most factors of production are owned and controlled by individuals while some factors of production are owned and controlled by the state
Free Market System
an economic system in which prices are determined by unrestricted competition between privately owned businesses.
Free Enterprise
an economic system in which private business operates in competition and largely free of state control.