Economic Theories

A. Role of Economic theories 1. Three questions they all answer A. What should be produced B. How goods and services should be produced C. Who gets the goods and services that are produced

B. Capitalism – free enterprise 1. Pure capitalism has 5 characteristics A. Private ownership and control of property and resources B. Free enterprise C. Competition among businesses D. Freedom of Choice E. Possibility of Profits

B. Capitalism – free enterprise…..cont. 2. Origins of Capitalism A. 1776 Adam Smith – provided philosophy in his book “The Wealth of Nations” i. Idea of Laissez-faire (let alone) a. Government should keep its hands off b. Buyers and sellers decide what to produce

B. Capitalism – free enterprise…..cont. 3. Pure Capitalism – non existent A. Too Cruel B. U.S. has capitalism with government influence i. Government influence has increased in the past 100 years a. Social Security and Meat Inspection Act 4. Mixed Market Economy A. United States is the worlds best example B. Free enterprise combined with government decisions

C. Socialism 1. Origins A. Industrialized Europe had many problems i. low paid workers living in poverty with horrible working conditions 2. Government owns means of production 3. Government determines use of resources 4. Government distributes products and wages 5. Government provides services like education, healthcare and welfare

C. Socialism….continued 6. Democratic Socialism A. Peaceful change in leadership B. People have basic human rights and have control over government through elections C. Government makes many of the economic decisions D. Examples: Tanzania, Denmark, Norway, Sweden and Belgium

D. Communisim 1. Karl Marx wrote the “Communist Manifesto” A. Wrote this with Fredrich Engles, and was the guide to revolution and how to run a communist country B. The only way to change is by a Violent Revolution C. Marx saw everything as a class struggle between the Bourgeoisie and the Proletariat i. Bourgeoisie – Owners of Production (Capitalists) ii. Proletariat – the workers D. Believed that Capitalists are the ruling class

D. Communisim…continued 2. COMMAND ECONOMY A. Government decides all aspects of economy i. What will be produced ii. How much of any product will be produced iii. How will each product be distributed B. State owns industry and mass communication

ANSWER QUESTIONS 4-6 ON PAGE 702 CHAPTER 23 QUESTIONS ANSWER QUESTIONS 4-6 ON PAGE 702