econ test unit 2

adam smith

-Adam Smith was an eighteenth-century economist (1723-1790) -believed that free enterprise is not only the economic system that produces the most goods and services, but that it is also the most ethical economic system. -our self-interest prompts us to work hard, take risks, and in the end benefit others through our activities. -According to Smith, we are led by an "invisible hand" to do good for others -Self-interest is the main driving motivator of labor -Self-interest is restrained with competition...

4 Economic Systems - know what they are and why they are different

-Free Market/Capitalism -Command Economy (sometimes referred to as communism) -Mixed Economy -Traditional Economy

What is the role of the government in a free market?

1. Establishes rules 2. Enforces rules 3. Settles disputes

characteristics of a free enterprise

1. Little government involvement in the economy. (Laissez Faire = Let it be) 2. Individuals OWN resources and answer the four economic questions. 3. The opportunity to make PROFIT gives people INCENTIVE to produce quality items efficiently. 4. Wide variety of goods available to consumers. 5. Competition and Self-Interest work together to regulate the economy (keep prices down and quality up).

What is good about communism?

1. Low unemployment- everyone has a job 2. Great Job Security- the government doesn't go out of business 3. Equal incomes means no extremely poor people 4. Free Health Care

Since scarcity exists, governments have to determine what goods will be produced. What are the 4 questions every society must answer?

1. What goods will be produced? 2. How will the goods be produced? 3. For whom will the goods be produced? 4. How should the goods and services be distributed?

What is bad about communism?

1. no incentive to work harder 2. no incentive to innovate or come up with good ideas 3. no competition keeps quality of goods poor 4. corrupt leaders 5. few individual freedoms

What is the "so what" of the circular flow model?

A change in one arrow has an overall effect on the rest of it

Circular Flow Model

A model that shows the flow of goods and services and the interaction among households, businesses, and banks

Free Market Capitalism

A system of economics that minimizes government intervention and maximizes the role of the market.

Adam Smith v. Karl Marx

Adam Smith- wrote wealth of nations and said government should not intervene in business (laizzez-faire capitalism) Karl Marx- Communist Manifesto- ills of capitalism, communism, wanted proletariat to overthrow bourgeoisie.

adam smiths belief on the role of the government

An Inquiry into the Nature and Causes of the Wealth of Nations, written in 1776, Smith outlined three important government functions: 1. national defense 2. administration of justice (law and order) 3. the provision of certain public goods (e.g., transportation infrastructure and education).

Traditional Economy

An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.

Laissez-faire

Idea that government should play as small a role as possible in economic affairs

Karl Marx and Communism

Marx coined the term communism meaning everyone is equal

Is it likely that a revolution as Marx described it could ever take place in the United States? Why or why not?

Marxists believe proletarian revolutions can and will likely happen in all capitalist countries, related to the concept of world revolution. So he believed there is a good chance

Would Karl Marx have approved of communism in the Soviet Union under Lenin and Stalin?

No, the politicians met their own needs at the workers expense

Why did we look at the difference between North and South Korea at night?

North Korea's supply of electricity is too small to keep shining through the night

Karl Marx "Socialist v. Communist" phase of a revolution

Socialists hoped to change capitalism Communists sought to destroy capitalism

Why is the U.S. #12 on the Economic Freedom Ranking Map?

The Great Recession caused our ranking to drop, however, and it remains poorer due to slow post-recession growth

Adam Smith and the Invisible Hand Theory

The unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically is the invisible hand.

Communist Manifesto

This is the 1848 book written by Karl Marx which urges an uprising by workers to seize control of the factors of production from the upper and middle classes.

Why does Pope Francis support the "free market"?

a free market will inevitably succeed in bringing about greater justice and inclusiveness in the world.

Command Economy (Communism)

an economy in which production, investment, prices, and incomes are determined centrally by a government.

Communism vs. Socialism

communism - each person contributes as they are able and receives what they need; no private property; no class distinctions socialism - each person contributes as they are able, and receive what they have earned, houses and clothes etc. owned privately; businesses owned by the government; class distinctions diminished

mixed economy (socialism)

economies with features of both free enterprise and socialism

what caused Marx to question capitalism?

he thought it was destined to collapse

Why does Pope Francis disapprove of any system of "unregulated economic amorality"?

it leaves people at the mercy of impersonal market. these markets somehow violate morality by treating others merely as means rather than as valuable ends in themselves

most economies in the world are

mixed economies

Marx on religion

religion is the opiate of the masses

What part of the circular flow model was not present before 1890 and why?

the government was not on the flow chart because the government wasn't really involved in the economy

Why did Marx believe the history of society is the "history of class struggles?"

the problems in society were mainly because of money

Why did we watch the video on North Korea?

to show how secretive and quiet their government and economy is about everything. -for example: erasing history, government censored media, acing like their self-sufficient when it reality they're not etc

Why does Pope Francis refer to it as "virtuous capitalism"?

what Pope Francis really meant is that what matters for the success of capitalism is the virtuous people in the that system