Economic Theories

1
Economic Theories

• Economics the study of human efforts to satisfy
  seemingly unlimited wants through the use of
  limited resources.

2
The Role of Economic Systems

• All economic systems must make three major
  economic decisions
• What and how much should be produced
• How goods and services should be produced
• Who gets the goods and services that are produced

3
Capitalism

• Pure capitalism has 5 main characteristics
• 1. Private ownership and control of property
  and economic resources
• 2. Free enterprise
• 3. Competition among businesses
• 4. Freedom of choice
• 5. The possibility of profits

4
Origins of Capitalism

• No one person invented capitalism
• Two important concepts laid the foundation for
  the market system
• 1. People would work for economic gain
• 2. Wealth should be used aggressively
• Free market buyers and sellers are free to make
  unlimited economic decisions in the market place.

5
Adam Smith

• Scottish philosopher and economist
• Laissez-faire French term meaning to let
  alone
• According to this philosophy, government should
  keeps its hands off the economy
• In free-enterprise or pure market economy,
  economic decisions are made by buyers (consumers)
  and sellers (producers)
• Competition is the key role in free-enterprise

6
Free Enterprise in the U.S.

• No nation has a pure capitalist system
• The U.S. is a leading example of a capitalist
  system in which government plays a key role.
• The main task is to preserve the free market
• Government encourages business competition and
  private property ownership

7
Government Influence

• Since the early 1900s the national governments
  influence changed in several ways
• 1. It became the single largest buyer of goods
  and services in the country
• 2. The government has increasingly regulated
  the economy for various purposes
• 3. Since the depression, they set up programs
  to aid the unemployed and a vaiety of social
  programs.

8
Mixed-Market Economy

• An economy in which free enterprise is combined
  with and supported by government decisions in the
  market place.
• Government keeps competition free and fair and
  protects the public interest.
• The American economic system is rooted deeply in
  the idea of individual initiative.

9
Socialism

• Government owns the basic means of production ,
  determines the use of resources, distributes
  products and wages, and provides social services
  such as education, health care, and welfare.

10
Socialism Has 3 Main Goals

• Distribution of wealth and economic opportunity
  equally among people
• Societys control, through its government, of all
  major decisions about production
• Public ownership of most land, of factories, and
  of other means of production.

11
Democratic Socialism

• The people have basic human rights and have some
  control over government officials through free
  elections and multiparty systems.
• The government owns the basic means of production
  and makes most economic decisions.
• Great Britain, Tanzania, Denmark, Norway, and
  Sweden

12

• Pro - The government controls steel mills,
  shipyards, railroads, and airlines.
• Also provides services such as health and medical
  care
• Con Stifles individual initiative
• High tax rates
• Big government

13
Communism

• Karl Marx a German thinker and writer who
  advocated violent revolution
• Believed the population of the industrialized
  nations divided into two types
• 1. Bourgeoisie own the means of production
• 2. Proletariat workers to produce the goods

14
Class Struggles

• Marx predicted that, as time passed a smaller
  group of capitalists would control all means of
  production and all the wealth.
• Workers would rise up and overthrow the
  capitalists
• The goal of the revolution was government
  ownership of the means of production and
  distribution

15
Communism

• One class would evolve, property would all be
  held in common, and there would be no need for
  government.

16
Communism as a Command Economy

• Government planners decide how much to produce,
  what to produce, and how to distribute goods and
  services produced
• Decisions are made by upper levels of government
  and handed down to managers