Economics- Chapter 1 & 2 Study Guide
Adam Smith
-"wealth of nations": criticized Mercantilism (stifling government and unfair privileges) -self interest: "invisible hand": self regulating market -competition: believed in health competition -Laissez Fair: Government should not interfere with economy; government has its own natural laws; government should be able to operate freely
Gary Becker
-1st book Economic Analysis of Racial Discrimination - Economist
Services
-Actions or activities that one person performs for another Ex) haircut, dental care etc.
Safety net
-Government programs that protect people experiencing unfavorable economic conditions
Socialism
-Is a social and political philosophy based on the belief that democratic means should be used to distribute wealth throughout a society
Factors of Production
-Land: refers to all natural resources and capital used to produce goods and services -Labor: is an effort that a person devotes to a task for which that person is paid -Capital: is any human made resource that is used to produce other goods and services --> physical capital: human made objects used to create other goods and services ex) buildings and tools human capital: is knowledge and skills a worker gains through education and experience ex) doctor and stethoscopes -Entrepreneurs: a person who puts land, labor and capital together to create new goods and services
Circular flow
-Movement of money between consumers, businesses and governments
Profit
-The financial gain made in a transaction -total revenue - total cost
Economic system
-The method used by a society to produce and distribute goods and services
Transition
-a period of change in which an economy moves away from centrally planned towards market-based system
Externalities
-an economic side effect of a good or service that generates benefits or cost to someone other than the person deciding how much to produce or consume
Goods
-are physical objects Ex) shoes or shirts
Advantages of a free market
-economic freedom -growth- profit motive -variety-consumer sovereignty
Economic goals
-efficiency -freedom -security and predictability -Equity (fair) -growth and innovation
Problems of a command economy
-government dominated -performance frequently falls short of goals -workers have little incentive to produce -decision making takes long -no input from consumers
Scarcity
-implies limited quantities of resources to meet unlimited wants -is permanent
Karl Marx
-introduced their socialist philosophy -Wrote "Communist Manifesto"
Government involvement in a mixed economy
-limited role -Government enforced contracts -regulates economy -provide services not provided by private sectors - Government in entacts labor laws
Disadvantages of a free market
-not all required goods and services -not everyone is going to be successful -experience of expansion and contraction -harmful externalities are produced and impact whole society
Shortages
-occur when producers will or cannot offer goods or services at the current price -Shortages can be temporary or long term
Privatize
-or sold to individuals and then allowed to compete with each other
Specialization
-the concentration of the productive efforts of individuals and firms on a limited number of activities
Laissez Faire
-the doctrine that government generally should not intervene in the market place
Opportunity Cost
-the most desirable alternative given up as the result of a decision
Consumer Sovereignty
-the power of consumers to decide what gets produced
Economics
-the study of scarcity and choice
Lenin
-took over the Soviet Union during the Bolshevik Revolution
Fundamental Questions
1) what goods and services should be produced 2) how should these goods and services be produced 3) who consumes these goods and services being produced