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Economic Theories
Economic Theories
1) What and how are much should be produced
2) How goods and services should be produced
3) Who gets the goods and services that are produced.
Capitalism, socialism, and communism
Role of Economic Systems
Private ownership of properties and resources
Free enterprise
Competition among business
Freedom of Choice
Profits
Capitalism
Free Market: Buyers and Sellers are free to make your own decision
Laissez-Faire: “to let alone”, government should keep their hands off the economy
Adam Smith believed in “free market”
Capitalism
Socialism: The government owns the basic means of production, determines use of resources, wages, and provides service, such as education, health care, and welfare.
Socialism
Goals:
1) distribution of wealth and economic opportunity among people
2) society’s control through its government, of all major decisions about production
3) public ownership of most land, factories.
Socialism
Karl Marx: A socialist who advocated violent revolution , critical of capitalism.
Believe that everybody should be “equal”.
Believe that after a very violent revolution, the capitalist will be overthrown, and people will own the property
Communism
Owns the means of production
They are very rich people
They are the ruling class
They exploit the working class
Capitalists
Bourgeoisie
People who work to produce the goods
The working class
Typically, very poor people
Workers
Proletariat
Communist governments decides how much to make, what to make, and how to share the goods and services.
Decisions are made in the upper levels of government, and handed to the people.
Command Economies
State owns /controls almost everything; land, resources, bank, industries, transportation, newspapers, radio, and movie production.
The needs of the state is more important that the needs of the individual.
People generally have little political freedom.
Command Economies
The United States has this economic system.
Our economy is not 100% Lassez-faire.
Our economy is not 100% socialist.
It is a mixture of both.
Mixed Market Economy
The US use a combination of both, this is known as a mixed market economy.
Government keeps competition free, but protects public interests.
People can own private property, but one person, or group can’t control all of the oil sales in the US, and charge very high prices.
