Chapter 3 Econ

Gov't's role in mixed economy

legal system to enforce laws and a stable system of currency

Karl Marx

was a philosopher and economist famous for his ideas about capitalism and communism

Gov't's role in regulation

-public works -gov't-financed projects = dams, highways, & sewer systems

Top 2 goals in the main economic systems

Command - stability and security Market - freedom efficiency Traditional - stability and security?

Three main economic systems

Command, Market, Traditional

What are the three basic economic questions that all societies/economies must answer

Who - consumes the goods & services produced in society? What -goods & services should be produced? How - should goods & services be produced?

Growth

an increase in the amount of goods and services produced per head of the population over a period of time.

Equity

fairness

Private Property

refers to the resources and products owned by individuals and businesses

Security

stable income

Goals of the US Free Enterprise System

freedom, efficiency, equity, security, stability, and growth.

Gov't's role in protection

gov't regulates the manufacture of cosmetics, foods, and drugs because consumers want to know if it's safe

Socialism

a political and economic theory of social organization that advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole

Specialization

a process in which businesses and people focus on producing one or a few parts of an entire production

Decision making by the state of command economies

economic planning was done by gov't committees of economists, production experts, & political officials

Efficiency

every resource is optimally allocated to serve each individual while minimizing waste and inefficiency

Capitalism

factors of production are owned by individuals and answer the basic economic questions

Circular Flow

is a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents.

Communist Manifesto

is an 1848 political pamphlet by German philosophers Karl Marx and Friedrich Engels.

Price System

uses monetary prices as a message system to facilitate exchanges between buyers and sellers

Pillars of US Free Enterprise System

-Private Property -Specialization -Voluntary Exchange -Price System -Market Competition -Entrepreneurship

Gov't's role in public benefits

-health care is provided -some gov'ts provide free education or day care -provide g&s and tax heavily to pay for g&s

What is a mixed economy and the basic characteristics

-incorporates elements of both command and market systems in determining answers to the three questions -strong market components also include a public goods and services sector, just as command economies like Cuba include a private goods and services sector.

Know about how capitalism gave rise to socialism and communism and the impact of the Industrial revolution on the economy on society

-new inventions and manufacturing processes spurred the growth of industry -better goods improved lifestyles

Problem w/ Communist command systems

-shortages were common -planners ignored the incentives-matter principle

Authoritarian

-the government controls or owns nearly all factors of production -closest to pure command model -communism

Democratic

-the government owns some factors of production -falls between communism and capitalism -usually key industries, such as electrical utilities, telephone, and health care

"How to produce?"

All economic systems must determine how goods and services will be produced.

"What to produce?"

All economic systems must determine how to allocate productive resources in the form of land (natural resources/raw materials), labor (work for which we earn pay) and capital (human - education & job training) (physical - buildings, equipment & tools).

"For whom?"

All economic systems must determine which goods and services will be available for public use and which for private use.

Know the three different mixed economies

Authoritarian Socialism, Democratic Socialism, and Capitalism

What is an economic system?

The institutional framework of formal and informal rules that a society uses to determine what to produce, how to produce and how to distribute goods and services.

Voluntary Exchange

the act of buyers and sellers freely and willingly engaging in market transactions

Entrepreneurship

the motivation that drives business leaders to compete and react to changing conditions in the market

Market Competition

the rivalry among sellers trying to achieve such goals as increasing profits, market share, and sales volume by varying the elements of the marketing mix: price, product, distribution, and promotion