O U T L I N E N O T E S

CH. 17 ECONOMICS

ECONOMICS

• Economics- how people make their livings, earn & spend $, trade with one another and invest in their future. • Economist- someone who studies economics.

ECONOMICS

• Problem of Scarcity• People have

unlimited wants but society can only produce a limited # of goods & services @ 1 time.

• Goods- things people make.• Ex. Food, toys,

clothes, cars

• Services- what people do for others• Ex. Plumbers,

doctors, waitresses, mechanics

ECONOMICS

• So every society must answer 3 questions: • 1. What should be produced? • 2. How it should be produced?• 3. Who should get it?

• How a society answers these 3 questions determines what kind of economic system it has.

ECONOMICSTYPES OF ECONOMIC SYSTEMS

TRADITIONAL ECONOMIC SYSTEM

• Economic decisions based on ancestors, customs, & beliefs handed from one generation to another. • Born into position in village/tribe usually hunt,

fish, or herd animals• Often no private property- everything owned by

family or village. • Little trade with outsiders- produce & consumer

goods/services w/in tribe. • Change & growth proceed very slowly• Production by: subsistence agriculture or cottage

industries

TRADITIONAL ECONOMIC SYSTEM

• Subsistence Agriculture-• Produces only

enough to feed farmer’s family, very little if any traded or sold. • Ex.- most of Africa,

Asia, & parts of Latin America

TRADITIONAL ECONOMIC SYSTEMS

• Cottage Industries• In their spare time

people create goods for sale or trade. Common in traditional societies, especially among farmers. • Ex. Tribal clothes

made by many African tribes. Quilts made by early settler families.

CAPITALISM (FREE ENTERPRISE/FREE MARKET SYSTEM)

• An economic system in which people own their own goods and property.

• Some people invest their money in different ways of producing things (factories, machines, and land) or in distributing goods so that they may gain a profit.

• In a free enterprise system, people are free to produce whatever they wish and to buy whatever they can afford.

• The three basic economic questions are answered by the interplay between consumers (buyers) and producers (sellers).

HOW PRICES ARE DETERMINED

Supply

• How much of a good producers are willing to make and sell. • If the supply is high

but demand is low, the price goes down.

Demand

• How much of a good consumers are willing to buy.• When the demand for

a good is high, the price goes up.

ROLE OF GOVERNMENT

• Government acts as an umpire, providing and enforcing a set of common rules, maintaining a monetary system, providing for the nation's defense, and protecting people's right. • In a free enterprise system, people sometimes

look to government to break up or regulate companies that have obtained so much power that they could defy market forces. • A company that can do that is called a Monopoly.

PRODUCTION METHODS

Commercial Agriculture

• Farmers grow food not just for themselves, but in order to sell it to others for cash.

• In commercial agriculture, crop production is intended for distribution to wholesalers and retailers, such as supermarkets and grocery stores.

• Large-scale commercial agriculture makes production cheaper.

Commercial Industry

• Goods are manufactured in factories for sale throughout the country or overseas.

ECONOMICSCOMMUNISM

COMMUNISM

• Communism was developed in the 1800’s by Karl Marx(1818 -1883). Marx believed that business owners (whom he called capitalists) used their wealth to take advantage of workers by taking away most of the value of what they produced.

• Marx predicted that the conditions of workers would grow so bad that they would eventually rise up and overthrow their capitalist rulers in a violent revolution. After the revolution, workers would establish an equal society and live in perfect harmony, under what Marx called "communism."

• In theory, there are no social classes in a communist system.

• Cooperation is supposed to replace competition, allowing everyone's needs to be met.

COMMUNISM

• In practice, communism is an economic system in which all important economic decisions are made by government leaders. • These leaders decide what, how, and for whom goods

and services will be produced.

• The way goods are produced and distributed is controlled by government leaders for the good of society as a whole. • Government officials develop national plans, often for

five-year periods, that specify which goods each factory will make.

• Role of Government• Makes all decisions

about production.

• Private Property• No private property of

national resources, all own by government.

• Cooperation• Based on cooperation &

all working for common good and equality.

• Major Goal• Achieve a classless

society & equality for all

MAIN FEATURES OF COMMUNISM

ECONOMICSSOCIALISM

SOCIALISM

• Socialism is an economic system in which the most important businesses producing goods (mines, factories, businesses) are owned by the government rather than by individuals.

• Socialist governments typically own their nation's railroads, airlines, hospitals, banks, utility companies, mining or oil companies and other major industries.

• However, unlike communism, socialism encourages private ownership of small businesses (such as shops and small manufacturers).

• Some economists refer to socialist economies as• "free market socialism" because these economies do not

involve state planning.

SOCIALISM

• Socialism first began in the 1800s as a political movement in response to the injustices of industry and the exploitation of workers in Europe. • Many workers had to work long hours for low

wages in unsafe conditions. • Socialist reformers believed the best way to

protect workers was to have the government control the major means of production. • They saw the government as the best protector of

the worker.

SOCIALISM

• Socialists believed that workers could improve their own conditions by voting for sympathetic government leaders. • The government could then own basic industries

and also provide essential services, like free schooling, low-cost housing, public transportation, and a national health program.

• Role of Government• Government should use its

power to end poverty by taking control of major resources & providing public services.

• Economic Decisions• Many major decisions made by

government.

• Private Property• Government owns major

industries; private ownership of small businesses.

• Major Goal• A fairer distribution of income

among all members of society, meet people’s basic needs.

MAIN FEATURES OF SOCIALISM