Econ basics see Econ note Basic Principles of Econ Resource development the study of how to increase resources and to create the conditions that will make better use of those resources i e by getting oil from shale or tar sands Teach a person to start a fish farm and he or she will be able to feed a village for a lifetime Business owners provide jobs and economic growth for their employees and communities as well as for themselves Adam Smith theories freedom is vital to the survival of an economy the freedom to own land or property and to keep the profits from working the land business People will work and respond to incentives How businesses benefit the community cid 127 Free Market Capitalism invisible hand a phrase coined by Adam Smith to describe the process that turns self directed gain into social and economic benefits for all Capitalism An economic system in which all or most of the factors of production and distribution are privately owned and operated for profit no society is fully capitalist governments are involved in setting minimum wages labor laws lending money to small businesses foundation of US canada Australia British economies State capitalism the state runs some businesses instead of private owners i e China The 4 basic rights of capitalism The right to own private property The right to freedom of competition The right to own a business and keep all that business s profits incentives for businesspeople The right to freedom of choice people free to choose where to work live what to buy or sell benefit people are willing to take more risks A free market is one in which decision about what and how much to produce are made by the market the price tells producers how much to produce Supply The quantity of products that manufacturers or owners are willing to sell at different prices at a specific time supply and price have a positive relationship Demand the quantity of products that people are willing to buy at different prices at a specific time demand and price have a negative relationship as the quantity demanded increases the price decreases the lower the price the more buyers are willing to buy cid 127 Market price determined by supply and demand It is the price toward which the market will trend equilibrium price 4 Degrees of competition sellers products appear to be identical no true examples computers and T shirts perfect competition when there are many sellers in a market and none is large enough to dictate the price of a product cid 127 monopolistic competition a large number of sellers produce very similar products that buyers nevertheless perceive as different i e hot dogs personal Product differentiation the attempt to make buyers think similar products are different in some way is a key to success ex fast food with its pricing battles of hamburgers oligopoly is when there are just a few sellers dominating a market gasoline cars aluminum aircrafts 1 cause is large start up cost starting airplane company very expensive Product differentiation is again the key to success same as monopolistic comp cid 127 monopoly when only one seller controls the total supply of a product or service and sets the price Laws against monopolies in the US however lawful monopolies in Utilities prices controlled by public service commission Benefits allows for competition allows poor people opportunity to come out of poverty encourages businesses to be more efficient so they can compete on price and quality Limitations cid 127 Owners managers make more than lower level workers cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 cid 127 An economic system based on the premise that some if not most basic business should be owned by the government so that profits can be more evenly distributed among the people deceiving public about products deceiving stockholders about the value of their stock all because of greed cid 127 Socialism Benefits social equality longer vacations work fewer hours more employee benefits Negatives takes away from incentives high taxes in socialist countries cid 127 Communism Problems brain drain the loss of the best and brightest people to other countries An economic and political system in which the government makes almost all economic decisions and owns almost all the major factors of production The government has no way of knowing what to produce because prices don t reflect supply and demand as they do in free markets shortages severe economic depression doesn t inspire business people to work hard because there are no incentives Free market economies Economic systems in which the market largely determines what goods and services get produced who gets them and how the economy grows cid 127 Mixed Economies Capitalism Doesn t respond to the needs of the poor old or disabled businesses don t protect the environment enough Command economies Economic systems in which the government largely decides what goods and services will be produced who will get them and how the economy will grow Socialism and communism are variations on this economic system don t always create enough jobs and wealth to keep the economy growing All countries have some mix of the two systems When a country is capitalist it tends to move toward socialism i e more healthcare When a country is more socialist it tends to move towards capitalism Mixed economies Economic systems in which some allocation of resources is made by the market and some by the government GDP the total value of final goods and services produced in a country in a given year Major influence on GDP is productivity of the workforce how much output workers create with a given amount of input Unemployment rate The percentage of civilians at least 16 years old who are unemployed and tried to find a job with prior four weeks mines have closed Cyclical unemployment occurs because of a recession or a similar downturn in the business cycle the most serious type Seasonal unemployment where demand for labor varies over the year as with the harvesting of crops Inflation is a general rise in the prices of goods and services over time disinflation a situtation in which price increases are slowing the inflation rate is declining deflation a situation
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