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Economics

The study of the allocation of scarce resources among unlimited wants

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Macroeconomics

Study of the economy as a whole or a major subdivision

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Microeconomics

The behavior of individual businesses or individual consumers as they decide how best to use available resources

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What is the major economic problem

Scarcity

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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

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5 Factors of Production

1. Land
2. Labor
3. Capital
4. Entrepreneurship
5. Technology

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Land

All natural resources

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Labor

All human inputs into production with the exception of entrepreneurship

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Capital

All man made aids of production

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Entrepreneurship

When a person takes the initiative to organize the factors of production and bears the risk and earns the profits or the losses

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Technology

The knowledge of how best to use the other factors of production

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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

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Circular Flow Diagram

A visual model of the economy that shows how money flows through markets among households and businesses

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Adam Smith

Wealth of Nations

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Market System Foundations

1. Private Property
2. Choice/Economic Freedom
3. Voluntary Exchange
4. Pure Competition
5. Economic Incentives

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Private Property

Owned by individual/business

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Choice/Economic Freedom

People can make choices in their own best interest

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Voluntary Exchange

Trade where both buyer and seller must feel that they will both benefit from item of trade

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Pure Competition

Industry with plenty of businesses, no one business is dominant

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Economic Incentives

Positive and negative stimuli that guide resources into the production of goods and services that people want most

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Opportunity Cost

Whatever must be given up to obtain something

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2 Things That Can Have a Great Effect On Economy

1. Change in resources
2. Change in technology

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Command Economy

An economic system where the government makes most of the economic decisions

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Market Economy

Based on private ownership, property, competition, and the profit motif

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Traditional Economy

Custom and tradition are used to answer economic questions

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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

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World Economic Systems

1. Capitalism
2. Socialism
3. Communism

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Socialism

An economic system where the government owns part of the means of production

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What are the goals of Socialism?

1. The redistribution of wealth
2. Protection from low wages (Minimum wage laws)

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Communism

The government owns all of the means of production
Based on the idea of Economic Determinism
Dictatorship of the proletariat

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Economic Determinism

Everything is determined by economics

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Goal of Communism

Creation of a classless society

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Karl Marx

Published Communist Manifesto

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Karl Marx and Frederich Engles

Published Capital

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Bourgeoisie

Middle and Upper Class

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Proletariat

Lower Class

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Russian Communism begins with what

The Revolution of 1917

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Who led the Revolution of 1917

Vladimir Lenin and the Bolsheviks

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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

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Lenin introduces the NEP which stands for what

New Economic Policy

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Who followed after the death of Vladimir Lenin?

Joseph Stalin

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What does Stalin start?

Central Planning

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What is Central Planning?

The government plans the economy

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5 Year Planning

They emphasize parts of the economy for 5 years at a time

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What do they focus on for the first 5 years?

Heavy Industry and Collective Farms

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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

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Chinese Communist Leader

Mao Zedong

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What are the rules of Chinese Communism?

1. Abolished private property
2. Followed a 5 Year Plan

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Chinese 5 year plan

Focus on Heavy Industry

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Chinese Cultural Revolution

Violent movement that
1. Killed royal families
2. Destroyed temples, libraries, etc.
3. Sent people to re-education camps

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Who began the 4 Modernizations

Deng Xiaoping (followed after Mao Zedong's death)

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Chinese start introducing what?

Capitalism and encouraged Foreign Investments

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How will they accomplish the 4 Modernizations

Sent their people to American and Canadian education systems to learn and modernize their own country