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ECON 104 > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

production

A

any activity that results in the conversion of resources into products that can be used in consumption
input -> output goods

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2
Q

resources or factors of production

A

inputs
land, labor, physical capital, human capital

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3
Q

land

A

natural recourses

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4
Q

labor

A

people, workers, employees

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5
Q

physical capital

A

all manufactured resources
machines, buildings, mechanical equipment

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6
Q

human capital

A

training, skills, education

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7
Q

entrepreneurship

A

person who organizes, manages, and assembles the other resources, virtually no new business could get started or operate without entrepreneurs
-risk taskers as they can lose a lot
- maker of basic business decisions

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8
Q

economic system

A

a scoiety’s institutional mechanism for determining the way in which scare resources are used to satisfy human wants
-each country must figure out how to deal with scarcity and allocation issues

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9
Q

3 questions each economy must answer

A
  1. what goods and services will be produced
    -what do people want?
    -consider opportunity costs
  2. how will goods and services be produced
    -labor? machines?
  3. who will receive the goods and services produced
    -government or market distribution
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10
Q

market economy

A

market forces (supply & demand) answer 3 questions
very decentralized
institutions created by the state protect private property & enforce contracts

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11
Q

adam smith’s “invisible hand”

A

when everyone does what’s in their own best interest, the economy thrives

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12
Q

centrally planned economy

A

central government makes all output, pricing, and allocation decisions

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13
Q

why does centrally planned economy fail

A

individuals likely don’t have proper incentives to work hard, innovate, or maintain resources
government isn’t very good (compared to markets) or determining needs of individuals

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14
Q

mixed economy

A

most economic decisions may result from the interaction of buyers and sellers in markets but the government plays a role in the allocation of certain resources
-all economies are mixed to some degree
-depends on the extent of government role

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15
Q

3 questions create what 3 sub questions

A

who owns the factors of production (inputs)?
can individuals own private property?
how involved is the government in the production and distribution process?

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16
Q

these sub questions ultimately

A

determine the incentives that people face

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17
Q

incentives affect

A

individual decision making

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18
Q

the actions of individuals will

A

aggregate & affect overall economic growth, income, and well being

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19
Q

the wrong incentives will

A

slow or stop government growth & innovation

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20
Q

communism

A

most or all property and resources are collectively owned and distributed by the government. idea in which all people are equal and there is no need for money or the accumulation of individual wealth

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21
Q

3 points of communism

A
  1. no private ownership of economic resources
  2. central government controls all facets of production
  3. economic output is owned and distributed by government
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22
Q

central government provides people with all living necessities from benefits of

A

collective labor (depends on constant advances in technology to provide increased production

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23
Q

problem with “from each according to his ability, to each according to his needs”

A

the government
- expects you to contribute as much as they ask
-determine your “needs”

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24
Q

communism ideology birthed because of french revolution because Karl Marx believed

A

all of history was based in class struggles

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25
Q

in a capitalist society, Marx saw a “ruling class” that

A

owned the means of production

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26
Q

the “working class” either were the means of production, or

A

enabled other means of production, such as operating machinery

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27
Q

Marx believed resentment would arise under capitalism

A

he actively advocated for such working class revolts

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28
Q

communism philosophy

A

from each according to his ability, to each according to his needs

29
Q

communism economy planned by

A

central government

30
Q

communism ownership of economic resources

A

all resources are publicly owned and controlled by the government

31
Q

communism distribution of economic production

A

production will meet all basic human needs and is distributed to the people at no change

32
Q

communism class distinction

A

class is abolished

33
Q

communist states

A

north korea, cuba, former soviet union

34
Q

why is china not pure communism?

A
  1. economy not communist anymore (state is partially communist on paper)
  2. series of market-oriented economic reforms starting in 1978 after death of Mao Zedong
    -decollectivization
    -permission for entrepreneurs to start business
    -privatization of many state-owned industries
    -special economic zones
35
Q

Marxism

A

is a political and economic philosophy

36
Q

one necessary facet to the transformation towards a communist society is

A

abolishment of inheritance

37
Q

why is it bad to be equal with communism

A

we will all be equally poor

38
Q

main economic problems with communism

A
  1. strong incentive to free ride
  2. economy will stall out
39
Q

communism today

A
  1. rise in the “oppressed vs oppressor” ideology
  2. many people today more concerned with equity of results rather than equity of opportunity
40
Q

china communism

A

agricultural output from 1970s was less than output in 1949

41
Q

chinese farmers 1978

A

wanted to grow food for themselves rather than being dependent on government
result: increase in per capita income

42
Q

why did things change after farmers asked to grow food?

A

they had incentives to produce all because they changed economic rules

43
Q

with government having control over everything

A

extreme corruption
human rights violations
leaders are rich
citizens are poor, fearful, powerless

44
Q

example of affects of communism

A

north vs south korea

45
Q

USSR communism 1950-1980

A

large investments in physical capital (factories)
resulted in increases in capital per hour worked and GDP per hour worked

46
Q

why lack of technological advances in USSR?

A

no incentives to work or innovate in a way that supports long run growth
collapsed in 1991

47
Q

life for a typical person in USSR

A

long lines, shortages, and unhappy people

48
Q

socialism

A

an economic system under which each person- though a democratically elected government- is given an equal share of economic inputs: labor, land, entrepreneurship, capital goods, and natural resources

49
Q

pure socialism assumes that people

A

naturally want to cooperate, but are restrained from doing so by competition inside of capitalism

50
Q

like a command economy, the socialist government employs

A

centralized planning to allocate resources based on both the needs of individuals and society as a whole

51
Q

socialism phrase

A

“from each according to his ability, to each according to his contribution

52
Q

problem similar to that of communism:

A

government determines ability and contribution and wrong incentives lead to slow or no growth

53
Q

communism and socialism both formed out of

A

perceived exploitation of workers by wealthy business during revolution
ex. french revolution, industrial revolution

54
Q

communism and socialism both assume that goods and services will be produced and distributed by

A

government- controlled institutions or collective organizations

55
Q

central government is responsible for

A

all aspects of economic planning, including matters of supply and demand

56
Q

socialism is based on the premise the people will compensated based in

A

their level of individual contribution to the economy
-possible for effort and innovation to be rewarded under socialism
- but still massive government control

57
Q

socialism ownership

A

individuals can own private property

58
Q

socialism class distinction

A

classes exist but difference are diminished. it is possible for some people to earn more than others

59
Q

socialism countries

A

algeria, bangladesh, eritrea, guinea-bissau, guyana, nepal, nicaragua, portugal, sri lanka, tanzania, western sahara

60
Q

countries with policies could be described as more social

A

france, germany, norway, denmark, finland, sweden

61
Q

all goods in the european countries are still distributed by

A

free markets with a captistlic approach

62
Q

you could loosely defined some of them as leaning more toward a

A

social democracy

63
Q

democratic socialism

A

an economic, social, and political ideology holding that while both the society and economy should be run democratically, they should be dedicated to meeting
- the needs of the people as a whole (rather than encouraging individual prosperity)

64
Q

Goal of democratic socialism

A

eventually have universally-used services distributed by government (housing, utilities, mass transit, health care)
consumer goods are distributed by a capitalistic free market

65
Q

the second half of the 20th century saw the birth of a more moderate version of socialist democracy, calling for

A

mixture of socialist and capitalist control of all means of economic production
extensities social welfare programs to help provide basic needs of the people

66
Q

how are social welfare programs funded

A

various taxes

67
Q

notable about scandinavian taxes

A

top taxes rates in scandinavia hit middle class people, not just the rich

68
Q

VAT

A

valued-added tax
added to each good through different production stages

69
Q

why is a VAT regressive

A

lower income people send a higher percentage of their income on this tax than higher-income people

ECON 104 (12 decks)

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