Economic Theories

1
Economic Theories

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

2
Economic Decisions

• All economic systems must make three choices
• 1. What and how much should be produced
• 2. How goods and services should be produced
• 3. Who gets the goods and services produced

3
Three major economic systems

• Capitalism
• Socialism
• Communism

4
Capitalism

• System in which freedom of choice and individual
  incentive for workers, investors, consumers, and
  business enterprises is emphasized

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Five Main Characteristics of Capitalism

• 1. Private ownership and control of property and
  economic resources
• 2. Free enterprise
• The opportunity to control ones own economic
  decisions
• 3. Competition among businesses
• 4. Freedom of choice
• 5. The possibility of profits

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Origin of Capitalism

• Concepts that laid the foundation for capitalism
• People could work for economic gain
• Wealth should be used aggressively
• Major changes nation-states, trade, and rising
  middle class
• Ideas of progress, invention, and free market

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Free Market

• Buyers and sellers were free to make unlimited
  economic decisions in the marketplace

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Adam Smith

• Author of The Wealth of Nations
• Described capitalism and from his writings and
  others came the term laissez-faire
• Laissez-faire to let alone or government should
  keep their hands off the economy

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Free Enterprise

• An economic system based on private ownership of
  the means of production the capital and on
  individual freedom
• In theory a free enterprise or pure market
  economy , economic decisions are made by buyers
  and sellers
• Competition plays a key role - sellers compete
  for resources consumers for products - workers
  wages and salary

10
Government Influence

• The U.S. Government is the countrys largest
  buyer of goods and services
• The government has increasingly regulated the
  economy for various purposes
• The Great Depression led to many social and
  economic programs

11
Mixed Market Economy

• An economy in which free enterprise is combined
  with and supported by government decisions in the
  marketplace.
• Government keeps competition free and fair and
  protects the public interest

12
Socialism

• Government owns the means of production,
  determines the use of resources, distributes the
  products and wages, and provides services such as
  education, healthcare and welfare.
• Combined with government socialism can be
  democratic or totalitarian

13
Communism

• An economic system in which the central
  government directs all major economic decisions
  (state socialism or command economy)
• Karl Marx Author of The Communist Manifesto and
  Das Kapital

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• Marx
• Advocated violent revolution
• Thought capitalist system would collapse
• Marx believed that in industrialized nations the
  population is divided into capitalists or the
  bourgeoisie who own the means of production, and
  the workers, or the proletariat who work to
  produce the goods.
• He believed the workers would rise up in violent
  revolution and overthrow the cpitalists

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• The goal was government ownership of the means of
  production and distribution
• One class of people would evolve and property
  would be held in common
• There would be no need for government and it
  would disappear and socialism would evolve into
  communism