Flashcards in Test 1 Deck (53):
The study of the allocation of scarce resources among unlimited wants
Study of the economy as a whole or a major subdivision
The behavior of individual businesses or individual consumers as they decide how best to use available resources
What is the major economic problem
10 principles of economics
1. People face trade offs
2. The cost of something is what you give up to get it
3. Rational people think at the margin
4. People respond to incentives
5. Trade can make everyone better off
6. Markets are usually a good way to organize economic activity
7. Governments can sometimes improve market outcomes
8. A country's standard of living depends on its ability to produce goods and services
9. Prices rise when the government prints more money
10. Society faces a short run trade off between inflation and unemployment
5 Factors of Production
All natural resources
All human inputs into production with the exception of entrepreneurship
All man made aids of production
When a person takes the initiative to organize the factors of production and bears the risk and earns the profits or the losses
The knowledge of how best to use the other factors of production
4 Basic Economic Questions
1. What should be produced?
2. How much should be produced?
3. What methods should be used?
4. How should goods and services be distributed
Circular Flow Diagram
A visual model of the economy that shows how money flows through markets among households and businesses
Wealth of Nations
Market System Foundations
1. Private Property
2. Choice/Economic Freedom
3. Voluntary Exchange
4. Pure Competition
5. Economic Incentives
Owned by individual/business
People can make choices in their own best interest
Trade where both buyer and seller must feel that they will both benefit from item of trade
Industry with plenty of businesses, no one business is dominant
Positive and negative stimuli that guide resources into the production of goods and services that people want most
Whatever must be given up to obtain something
2 Things That Can Have a Great Effect On Economy
1. Change in resources
2. Change in technology
An economic system where the government makes most of the economic decisions
Based on private ownership, property, competition, and the profit motif
Custom and tradition are used to answer economic questions
What is the role of government in the free enterprise system?
1. Safe guards the market system through anti-trust laws
2. Provide public goods and services (roads, police,etc.)
3. Deal with externalities (pollution,etc.)
4. Assist those in need
5. Help specific groups
6. Stabilize the economy
World Economic Systems
An economic system where the government owns part of the means of production
What are the goals of Socialism?
1. The redistribution of wealth
2. Protection from low wages (Minimum wage laws)
The government owns all of the means of production
Based on the idea of Economic Determinism
Dictatorship of the proletariat
Everything is determined by economics
Goal of Communism
Creation of a classless society
Published Communist Manifesto
Karl Marx and Frederich Engles
Middle and Upper Class
Russian Communism begins with what
The Revolution of 1917
Who led the Revolution of 1917
Vladimir Lenin and the Bolsheviks
What did War Communism do?
1. Abolish private property (Confiscate property of the wealthy and gave it to peasants)
2. Government took over all of the companies
3. Forced workers to relocate
4. Confiscated food from farmer to feed people in the city and the army
Lenin introduces the NEP which stands for what
New Economic Policy
Who followed after the death of Vladimir Lenin?
What does Stalin start?
What is Central Planning?
The government plans the economy
5 Year Planning
They emphasize parts of the economy for 5 years at a time
What do they focus on for the first 5 years?
Heavy Industry and Collective Farms
What happened with Central Planning?
Industry increased but farms failed because there was a lack of necessity (people didn't care enough)
There was a shortage of the smaller things
Chinese Communist Leader
What are the rules of Chinese Communism?
1. Abolished private property
2. Followed a 5 Year Plan
Chinese 5 year plan
Focus on Heavy Industry
Chinese Cultural Revolution
Violent movement that
1. Killed royal families
2. Destroyed temples, libraries, etc.
3. Sent people to re-education camps
Who began the 4 Modernizations
Deng Xiaoping (followed after Mao Zedong's death)
Chinese start introducing what?
Capitalism and encouraged Foreign Investments