Economic Theories A Role of Economic theories 1

Economic Theories

A. Role of Economic theories � 1. Three questions they all answer �A. What should be produced �B. How goods and services should be produced �C. Who gets the goods and services that are produced

B. Capitalism – free enterprise � 1. Pure capitalism has 5 characteristics �A. Private ownership and control of property and resources �B. Free enterprise �C. Competition among businesses

B. Capitalism – free enterprise…. . cont. � 2. Origins of Capitalism �A. 1776 Adam Smith – provided philosophy in his book “The Wealth of Nations” oi. Idea of Laissez-faire (let alone) • a. Government should keep its hands off • b. Buyers and sellers decide what to produce

B. Capitalism – free enterprise…. . cont. � 3. Pure Capitalism – non existent �A. Too Cruel �B. U. S. has capitalism with government influence o i. Government influence has increased in the past 100 years • a. Social Security and Meat Inspection Act � 4. Mixed Market Economy �A. United States is the worlds best example �B. Free enterprise combined with government

C. Socialism � 1. Origins �A. Industrialized Europe had many problems oi. low paid workers living in poverty with horrible working conditions � 2. Government owns means of production � 3. Government determines use of resources � 4. Government distributes products and wages

C. Socialism…. continued � 6. Democratic Socialism �A. Peaceful change in leadership �B. People have basic human rights and have control over government through elections �C. Government makes many of the economic decisions �D. Examples: Tanzania, Denmark, Norway, Sweden and Belgium

D. Communisim � 1. Karl Marx wrote the “Communist Manifesto” �A. Wrote this with Fredrich Engles, and was the guide to revolution and how to run a communist country �B. The only way to change is by a Violent Revolution �C. Marx saw everything as a class struggle between the Bourgeoisie and the Proletariat o i. Bourgeoisie – Owners of Production (Capitalists)

D. Communisim…continued � 2. COMMAND ECONOMY �A. Government decides all aspects of economy oi. What will be produced oii. How much of any product will be produced oiii. How will each product be distributed �B. State owns industry and mass communication

CHAPTER 23 QUESTIONS � ANSWER QUESTIONS 46 ON PAGE 702