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.