Download Economy - Ch 3

Political and Economic Analysis
Economy – the organized way a nation provides for the needs and wants of its people
Resources – all the things used in producing goods and services.
Factors of production - Land, Labor, Capital, Entrepreneurship
Land – everything contained in the earth or found in sea; these natural
resources are used as the raw material in making goods and creating
services that are marketed to customers.
Labor- all the people who work
Capital – money to start and operate a business. Includes the goods used
in production process. Without capital marketers would not have the
funds or resources to develop, advertise and transport goods. It also
includes infrastructure ( physical development of a country such as roads,
ports, sanitation, utilities, telecommunications.
Entrepreneurship – skills of people who are willing to invest time and
money to run a business. These are the employers of a population
Scarcity – the difference between the wants and needs, and available
resources
How does an economy work??
3 basic questions have to be answered
1. Which goods and services should be produced?
2. How should the goods and services be produced?
3. For whom should the goods and services be produced?
3 types of economies
Traditional- An underdeveloped economy in which communities use
primitive tools and methods to harvest and hunt for food, often resulting
in little economic growth. Traditional economies are often found in
rural regions with high levels of subsistence farming. Countries that evolve
their economies past the traditional level often develop into market
economies or command economies.
Market – A system of allocating resources based only on the interaction of
market forces, such as supply and demand. A true market economy is free
of governmental influence, collusion and other external interference.
Command- An economy where supply and price are regulated by the government
rather than market forces. Government planners decide which goods and
services are produced and how they are distributed. The former Soviet Union
was an example of a command economy. Also called a centrally
planned economy.
Mixed Economies
Economic system in which both the private enterprise and a degree of state monopoly
(usually in public services, defense, infrastructure, and basic industries) coexist. All modern
economies are mixed where means of production are shared between the private and
public sectors. Also called dual economy.
Capitalism- Economic system based (to a varying degree) on private ownership
of the factors of production (capital, land, and labor) employed in generation of
profits. It is the oldest and most common of all economic systems and,
in general, is synonymous with free market system.
Communism – Economic and social system in which all (or nearly all) property and
resources are collectively owned by a classless society and not by individual citizens.
Based on the 1848 publication 'Communist Manifesto' by two German political
philosophers, Karl Marx (1818-1883) and Friedrich Engels (1820-1895), it envisioned
common ownership of all land and capital and withering away of the coercive power of
the state. In such a society, social relations were regulated each according to his ability, to
each according to his needs. Differences between manual and intellectual labor
and between rural and urban life were to disappear, opening up the way for unlimited
development of human potential. In view of the above, there has never been a truly
communist state although the Soviet Union of the past and China, Cuba, and North Korea
of today stake their claims.
Socialism- Economic system which is based on cooperation rather than competition and
which utilizes centralized planning and distribution. Socialism was originally based in
the working class and has generally been opposed to capitalism. Socialists have advocated
nationalization (government ownership and control) of natural resources, basic industries,
banking and credit institutions, and public utilities. Although the ultimate aim of early
socialists was a communist or classless society later socialists have increasingly
concentrated on social reforms within capitalism.
Labor Productivity – output per worker hour that is measured over a defined period
of time.
Higher productivity improves profits
GDP – output of goods and services produced by labor and property located within
a country. Includes private investment, government spending, and
personal spending, factor in trade surplus / deficit, factor in expanding /
shrinking inventories.
GNP – total dollar value of goods and services produced by a country, including goods
and services produced abroad by companies and citizens.
Standard of Living – measurement of amount and quality of goods and services that a
nation’s people have. It reflects quality of life. Calculated by dividing GDP or
GNP by population
Inflation – refers to rising prices. Use CPI (Consumer Price Index) and PPI (Producer
Price Index) as measures of inflation.
Unemployment Rate – the number of people who are able to work but do not
currently work
Class Project
Find the Economic Measurements we just talked about for the US and Canada.
They should all be in the last six months.
Labor Productivity
GDP
GNP
Inflation Rate
Unemployment Rate