Introduction to Economics 2 Learning goals and competences: describe types of economy, measurement of economic activity, typical institutions of the Austrian Social Market Economy, explain different economic goals within the magical quadrangle Type of economic system 1) Free market economy 2) Planned economy 3) Mixed Systems Eco-Social Market Economy Rules on: Private ownership Production of goods Sharing of the goods Sharing of income Planned economy (Marx) More or less all important economic decisions (who produces what for whom,...) are taken by the state. The decisions on production of goods and services are done centrally through a planning agency. There is no private equity on the means of production. Eco-Social Market-Economy (mixed systems) (Keynes, Eucken, Rögen) Basically free market economy, but there are state interventions to correct the worst market failures, and to care for the poor ones and the environment. Free Market Economy (Smith) All decisions (who produces, what for whom, ...) are taken by the private sector. The government provides only the legal frame, i.e. little public sector, little taxation and public spending. Measurement of economic activities (GDP) (Schumpeter) Realization of Eco-Market-Economy in Austria (Eucken) Goals of economic policy Measurement of the economy GDP Business cycles Human development index (HDI) Happy plantet index (HPI) Eco-Social Market Economy In Austria Social partners Sustainability Economic policy Who? Goals? Business cycles: ups and downs in the economy GDP gross domestic product = total yearly income in an economy Measurement: average GDP per head = sum of all goods & services – resprecive inputs to avoid doubble counting  GDP= economic growth (+ income + jobs, - environment)  BIP = recession (- income, - jobs, + environment) Economic policy: Sum of all planned measures of the state and other institutions (ECB, National Bank, Social partnership, .EU) to stimulate the economy through: Monetary policy (central bank: ECB) Fiscal policy (taxes) Labor market and social policy Health and education policy, Environmental policy Targets / Magic polygon: > very difficult to realize more goals at the same time: ... very often you‘ll find conflicting goals e.g. Growth and environmental protection at the 3rd runway for the Vienna international Airport „Social partnership“ Important instrument of the Austrian social market economy System of institutionalized cooperation between labor, businesses and government Cooperation in all important aspects of economic and social policy To avoid conflicts between the partizipants of the economic cycle Environmental protection Laws twith regard of protection of the environment Weaknesses of GDP (ecological or social aspects are neglected) –> Alternatives HDI – Human Development Index Happy Planet Indes and others