INTECOM Communism Falls

Economics is the study of choices people make and how they are affected by economic factors  Market reforms in China in the mid 1970s
Economics is the study of how individuals and societies make decisions about  Fall of the Berlin Wall in 1989
ways to use scarce resources to fulfill wants and needs  Collapse of the Soviet Union 1991
 Macroeconomics  Free market capitalism (with mixed economies) the only show in
o The big picture: growth, employment, etc. town
o Choices made by large groups (like countries)
 Microeconomics Free Market (Capitalist) Economies
o How individuals make economic decisions  Economic questions answered by producers and consumers
 Limited government involvement
5 Economic Questions Society (we) must figure out
 Private property rights
 WHAT to produce (make)
 Wide variety of choices and products
 HOW MUCH to produce (quantity)
 U.S., Japan
 HOW to produce it (manufacture)
 FOR WHOM to produce (who gets what) Adam Smith
 WHO gets to make these decision?  18th century Scottish economist
 Published “The Wealth of Nations” in 1776
Resources are things used to make other goods
 Explained the workings of the free market within capitalist
Scarcity – unlimited wants and needs but limited resources
economies
Because all resources, goods, and services are limited – we must make choices
 Invisible hand of market
Needs – stuff we must have to survive  Laissez-faire – government stays out of business practices “hands
Wants – stuff we would really like to have, also known as luxuries off” to let the market place determine production, consumption
We make choices about how we spend our money, time, and energy so we can fulfill our needs and wants and distribution
Trade-Off – the decision involve on picking one thing over all the other  Individual freedom and choice emphasized
possibilities  Principles of Capitalism
Opportunity Cost – a special kind of trade-off; whatever that we give up to o Competition – more businesses means lower prices
obtain another; the one that got away; Very important – when you choose to and higher quality products for consumers (us) to buy
do one thing, its value (how much its worth) is measured by the value of the o Voluntary exchange – businesses and consumers must
next best choice – this can be in time, energy, or even money e.g. traffic = be free to buy or sell what and when they want
wasting time o Private Property – individuals and businesses must be
able to get the benefits of owning their own property.
4 Factors of Production Government doesn’t control it
 Land – Natural Resources; all the stuff we find on, in , and under o Consumer Sovereignty – consumers get to make free
the land choices about what to buy and this helps drive
 Labor – Physical and Intellectual; labor is manpower production (demand drives supply)
 Capital – Tools, Machinery, Factories; the things we used to make o Profit Motive – people want to make or save money.
things; human capital is brainpower, ideas, innovation Their “self-interest” motivates Capitalism
 Entrepreneurship – Investment; investing time, natural resources, o Social Safety Net – “mixed economy” idea that says
labor and capital are all risks associated with production the government should not allow people to suffer in
economic crisis (natural part of Capitalism’s “Business
Capital Goods and Consumer Goods Cycle”). But provide security instead – Social Security,
Capital Goods are used to make other goods (factories, tools and equipment Unemployment Insurance, etc.
used in the production process
Intermediate Goods are raw materials used to make final goods  Mixed Economy/Socialism
Final Goods are products that are purchased directly by the consumer o Government involvement and ownership and control
of property, of decision making, and companies
o Government control of business
o Socialism
o Common in Europe, Latin America, and Africa

John Maynard Keynes

 The Invisible Hand doesn’t always work
 “the long run is a misleading guide to current affairs. In the long
run we are all dead.” or… the trouble is people eat in the short run
 Government should intervene in economic emergencies through
tax and spending (Fiscal Policy) and changing the money supply
(Monetary Policy)
 This is done to smooth out the business cycle (expansion and
recession) and keep inflation low

Comparative Economics
Traditional Economies
 Predominately agriculture
 Developing or 3rd world
 Trad and barter
Command Economies
 Economic questions answered by the government
 Very little economic choice
 No private ownership
 Communism
 Old Soviet Union, old Communist China, Cuba and N.Korea