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Economics
Gabby Noonan
German I
What is Economics?
Economics is the study of how to use our resources to
efficiently produce, distribute or allocate and consume
goods/services to satisfy unlimited wants.
Economics is an inexact and social science.
Economics can help to make predictions and
probabilities, but these are never certainties.
What is Economics?
There are 3 main questions that can be answered by
any economic system.
1)
What will be produced?
2)
How will it be produced?
3)
For whom will we produce?
Economics is also said to be a mixture of art and
common sense, through which we can see “The Big
Picture”.
How Do We Approach
Economics?
There are two different ways to approach economics.
1)Positive Economics- This consists of facts, anything that
can be proven correct or incorrect by scientific inquiry.
2)Normative Economics- This approach consists of facts,
value judgments and anything that can not be proven
by scientific inquiry.
What are the Types of Economic
Systems?
There are mainly two systems in economics- Socialism
and Capitalism.
Although there are mainly two systems, many
economic principles and theories derive from either
Socialism or Capitalism.
Most countries have a mixed economy, such as Welfare
Capitalism in the United States.
Capitalism
Capital (resources) are privately owned by individual
citizens, there is a right private property.
The motivating force of Capitalism is self interest.
Price systems are used in the market, which means
price determines everything.
Capitalism
The distribution of goods in a
capitalistic society is to each according
to his/her quantity and value of
contribution to society.
This distribution scheme causes an
unequal spread of income and wealth.
Many of the values of Capitalism are
founded on the ideas of Adam Smith.
Smith, the author of “The Wealth of
Nations”, came up with the idea of the
Invisible Hand. This meant having
competitive markets, price systems and
the distribution of good and income
to the strongest competitors.
Socialism
Capital (resources) are owned by society. It advocates
the collective or government ownership of goods.
There is no right to private property in this system. In
this system means of planning, producing, and
distributing goods is controlled by a central
government.
The motivating force of Socialism is altruism and
government commands.
The distribution of goods in a socialist society is from
each according to ability and to each according to
need.
Socialism
As an economic system, Socialism is a planned
economy in which resources are allocated by need.
The spread of wealth and income is more equal in a
socialistic society, however the individuals tend to lose
motivation because the pay off is vastly less.
This distribution scheme is a humane, but mostly an
inefficient one.
Socialism
The most influential of
socialist theory is derived from
Karl Marx and Friedrich
Engels, who marked Socialism
as the stage that would end
Capitalism and precede
Communism.
One of the main principles
from the Marxist concept of
socialism is that the class
system could be eliminated,
the state wouldn’t be as
needed and that people would
no longer be shaped by their
“wage slavery”.
Welfare Capitalism
Welfare Capitalism is a prime example of a mixed
economy.
In a welfare capitalistic society, the principles of
capitalism are followed, but with government
involvement.
The government will step in to take care of citizens and
help to maintain a minimum standard of living.
Role of the Government in
Capitalism
1.
To break up monopolies or monopolistic powers and
to promote and foster competition.
2.
To provide collective social goods (public goods) such
as street lamps, highways and Armed Forces. Public
goods are non-excludable and the marginal cost=0.
3.
Correct for the positive/negative externalities. An
example of this is pollution. Pollution is a negative
externality created by society that must be accounted
for.
Role of the Government in
Capitalism
4) The government must redistribute incomes more
equitably.
5) The government provides a framework of rules,
regulations and laws to uphold the right to private
property. They must enforce contracts and these laws
to keep order and allow for individual success, or else
Capitalism can not thrive.
Role of the Government in
Socialism
1) To plan how the shared good will be distributed among
society.
2) To put into effect the public goods, such as a social
healthcare system. The government will plan and
distribute the health services equally throughout the
country.
3) To maintain order in society, ease the class divide and
prevent a social uprising within the country.
Capitalism vs. Socialism
Capitalism
•
It is roughly estimated that
about 78% of countries
follow capitalistic principles.
•
Some of the most
economically successful
countries practice a form of
capitalism.
•
"Socialist societies have been
dramatically outperformed
by any number of successful
capitalist countries,
especially in Asia.”
Socialism
•
In a recent Newsweek study,
the top 100 countries were
ranked according to 5
categories. This research
found that the socialist
nations of Sweden and
Norway were ahead of the
US.
•
http://www.newsweek.com/
2010/08/15/interactiveinfographic-of-the-worldsbest-countries.html
Capitalism vs. Socialism
Capitalism
Some of the largest criticisms
of capitalism are the uneven
distribution of wealth,
imperialism, class division
and the tendency of market
monopoly.
Environmentalists argue that
capitalism requires constant
economic growth, which will
deplete the world’s
resources.
Socialism
One of the main arguments
against socialism is that it
limits the prosperity of its
citizens.
One of the major problem of
socialism is the shift to
extreme government control
and dictatorships.
How do They Compare
Statistically?
Sweden
United States
Literacy Rate- 99%
Literacy Rate- 99%
Avg schooling- 15.4 yrs
Avg Schooling- 15.8 yrs
Life Expectancy- 74 yrs
Life Expectancy- 70 yrs
Income Inequality-25%
Income Inequality-40.8%
Productive Growth-$36.8k
Productive Growth-$46.4k
Political Stability-89
Political Stability- 82.5
GDP-$406.07 Billion
GDP- $14.26 Trillion
Economics in Germany
Germany identifies its self as a “soziale Marktwirtschaft”,
which is a social market economy.
Germany is a mixed economy that applies the principles of
both capitalism and socialism to its structure. They are
considered to be a conservative and dynamic economy.
This system came into use after government reformation
took place and has been in effect since.
The terms social and market are stressed to demonstrate
that the government now has limited control, that the
country provides aid to those in need and has developed a
human dimension within the system.
Germany vs. United States
Germany
United States
Population- 81,757,600
Population-310,815,000
GDP- $2.81 Trillion
GDP- $14.26 Trillion
Per Capita- $34,212
Per Capita- $47,701
HDI- Ranked#10 with a
0.885 (^12)
HDI- Ranked #4 with a
0.902(^9)
Current German Economics
German economic growth is now slowing in the third quarter after record
expansion in the second.
The Federal Statistics Statistics Office in Wiesbaden reported a 2.3% growth
to GDP in the second quarter.
GDP in Germany is adjusting for seasonal effects and has only risen .7% in
the third quarter.
Germany is making steps towards normalizing the economic activity through
controlled government spending, repaying of national debt and by
maintaining “full momentum”.
“We’re coming out of the economic downturn with full momentum, our
growth is gaining speed. We expect to take this positive momentum into the
next fiscal year.”-Siemens Chief Executive Officer Peter Loescher
Works Citied
1) Dolan,Edward Huda,Safiul Lindsey, David E.
Understanding Microeconomics 2nd Edition
2) Smith,Adam An Inquiry into the Nature and Causes of
the Wealth of Nations
3) Black,Jeff Randow,Jana “Germany’s Economic Growth
Slows From Record Pace”www.businessweek.com/
news
4) http://www.newsweek.com/2010/08/15/interactive-
infographic-of-the-worlds-best-countries.html