Economic Theories Unit 1: Introduction to government
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Journal #3 Name: Date: Copy question: Where do you draw the
line between what government should do for us and what we should do
for ourselves?
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Monty Python What did the Romans do for us?
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Economics The study of how limited resources are used to
satisfy peoples wants. Resources: land, water, knowledge, labor
Societies must decide how resources will be used. Political system
determines how this is done.
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All economic systems must answer these questions: #1: What to
produce? #2: How to produce? #3: Who gets what is produced? VARIOUS
ways to accomplish this
Market economy: CAPITALISM FREE ENTERPRISE: NO government
intervention; private ownership Buyers & sellers act in their
individual interests (buy cheap/make profit) Supply & demand;
more demand, ie. MORE demand, MORE incentive to produce (producers
must supply the goods that consumers want) Prices determined by
market; keep price down to attract consumers Competition keeps
prices stabilized
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Example: Rubber band bracelets! Start to catch onkids want
them! Producers start making them to meet demand Competition
stabilizes cost; Equilibrium (demand matches production) Demand
decreases, producers decrease supply (the CRAZE is over!!)
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Origins of capitalism Capital = money invested to make more
money Buyers & sellers compete to make money 1200s in Europe;
Explorers & traders opening routes to Asia (spices, silk, gold)
As trade increased, more money made, more money available to
invest
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Origins of capitalism 1700s Europe: Nation-states Wealthy
middle class Familiar with banks, markets Value progress,
invention, free market NO LIMITS BY Government
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Origins of capitalism 1776: Adam Smith, The Wealth of Nations
Provided philosophy for free trade; did not like govt. regulating
trade (taxing imports) LAISSEZ-FAIRE (to let alone) Market acts as
invisible hand (action of people determines what is
bought/sold)
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ADVANTAGES OF CAPITALISM? Private ownership of industry Private
ownership of property Possibility of large profit (if you are
successful, you can be VERY successful!) Entrepreneur ability
Consumers have a say in what is produced with their buying
power
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Disadvantages of capitalism? Theres NO social safety net Youre
responsible for yourself Theres a BIG GAP between the rich &
the poor. if youre unsuccessful, you can be very unsuccessful.
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True Capitalism? Theoretical: American system is one of most
capitalistic (others include Canada, United Kingdom, Australia)
Government regulates (increasing over time) Meat Inspection (1906)
Pure Food & Drug Act (1906) Great Depression (1930s WWII):
Social Security Act
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America: Mixed Economy Mix of capitalism & socialism U.S.
basically identifies with capitalism Believe that to make economic
choices is part of individual freedom & Value individual
initiative
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MIXED ECONOMY: MIXES CAPITALISM & SOCIALISM Government
regulates private enterprise & has social safety net (Example:
regulates purity of food & drugs & Social Security)
Combines private & public enterprise: PRIVATE: individuals can
own business & property Example: Walmart (Walton Family; $33
billion profit 2014, $91 million/day) PUBLIC: govt. owns &
manages Examples: Corporation for Public Broadcasting & U.S.
Postal Service
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U.S. as mixed economy GOVERNMENT: regulates business through
licensing, banking, prevents monopolies, taxes provides for public
needs: water, sewage, rail, postal service, schools, roads, welfare
systems BUSINESS: Decide on products, costs, etc. Lots of people
start their own businesses initiative to make profits
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Command economy: Socialism a planned economy Government: owns
basic means of production (natural resources, railways) determines
use of resources distributes products & wages provides social
services (education, health care, welfare) STILL SOME PRIVATE
ENTERPRISE & OWNERSHIP
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Origins of socialism 1800s: Industrial Revolution brought MORE
production but MORE suffering Social reform: NO one should have to
suffer with so much opportunity
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FOR: Government should control the economy: distribute goods
equally; lots of public goods & services, narrows gap between
the rich & poor AGAINST: stifles individual initiative, high
taxes stop growth, big government
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Democratic socialism Committed to ideals of democracy (free
speech, free elections) Want better distribution of economic goods
(govt. ownership of key large industries, make economic decisions
for everyone), expansive social programs Examples: Denmark, Norway,
Sweden; all prosperous economies
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Communism Karl Marx (EQUALITY) Believed that the capitalist
system would collapse 1848 The Communist Manifestohistory is the
story of class struggle Proletariat: Industrial working class
Bourgeoisie: Owners (factories, land, water rights, etc.) Workers
did not receive full value of labor; owners pay low earn big
profits
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Karl Marx: The Communist Manifesto Scientific fact: struggle
was inevitable Goals: WORKERS UNITE, overthrow bourgeoisie Form
classless society EVERYONE owns means of production NO NEED for
government
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Communism: Command economy Government regulates ALL aspects of
the economy Decisions made at upper levels of government; decisions
handed down to managers State owns ALL means of production on
BEHALF of people Communism is an EXTREME FORM of socialism (NO
private ownership)
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ECONOMIC CONTINUUM
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COMMUNISM SOCIALISM CAPITALISM TOTAL GOVT REGULATION REGULATION
BASIC NO REGULATION MEANS of PRODUCTION NO PRIVATE OWNERSHIPSOME
PRIVATE OWNERSHIP ALL PRIVATE CITIZENS NEEDS PROVIDED EXPANSIVE
WELFARE NO SOCIAL PROGRAMS PROGRAMS
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Communism: Advantages? Highly efficient (distribute resources
to public) Highly effective & stable (everyone has job,
production) Government ensures basic needs are met (house,
education, welfare, job); No inequality
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Communism: Disadvantages Little freedom of choice (DO WHAT YOU
ARE TOLD) No reward for being a hard worker, no punishment if you
are a slacker (NO INCENTIVE) Has a Communist government EVER
existed based on Marxist ideals? NO Government does NOT disappear;
Becomes ALL powerful (turns to coercion against people)
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Communist nations Not really true to Marx idealno government
China, Cuba, Laos, North Vietnam, North Korea (rejected Marxism,
but still viewed by international community as communist) Peoples
Republic of China (established 1949), tight state control of
economy until Mao Zedongs death in 1976 (founder of party) Today?
Mixed economy Capitalism mixed into socialist system (workers can
keep some of the $ earned) Political freedoms still limited
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No pure capitalist, socialist, or communist nations More
complex and interconnected world (economics, communication,
politics) Question still debatedWhere do we draw the line between
what government should do for us and what we should do for
ourselves?
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Occupy movement We are the 99% Response to financial crisis;
worldwide movement FOCUS: how large corporation & the global
financial system control the world in a way that disproportionately
benefits a minority, undermines democracy, and is unstable. 1 st
major protest Sept. 2011 (Occupy Wall Street), spread to 951
cities, 82 countries, 600 U.S. communities Any impact?
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Informal Economy A part of almost every type of economy Not
monitored by any form or level of government (NOT taxed) Not
included in Gross National Product (GNP); measure of what citizens
produced in their own country Examples: black market, yard sales,
babysitting, music teachers