Ideas in economics Flashcards
Capitalism
Economic and political system where trade and industry is controlled by private agents for profit.
Key features of capitalism
- private property
own something can sell or change it. driven by incentives/gains, co-odination/ give to most productive, and investment - limited liability (you lose only what you put in)
Socialism
Economic and political system where trade and industry are controlled by state agents for social well being. State owns, regulates and funds resources.
Issues with socialism
Information problem how do you determine social wellbeing
Mixed economy
Economic and political system where trade and industry are owned by private agents for profit and resources are regulated by state agents for social well being. Functional benefit of capitalism, resource benefit of socialism. ALL ECONOMIES ARE MIXED
GDP
The dollar metric to count how much has been produced by an economy over a period of time. Measures social wellbeing.
Issues with GDP
Income is not a coorelation of wellbeing. Exclude people who dont work like children. Doesnt include other assets (wealth)
Productivity
how labor, machines and natural resources combine to generate outcomes that society wants.
Productivity gains
increase in productivity then in the past through technologies, innovations or machines. Ex: farming and medical field
Rationality
process of decision making. If A is caused by B rational decision is to do B.
Scarcity
Low amount of something.
How does scarcity impact rationality?
Motivates people to make a decision
Creates tunnel vision where that is the only thing people focus on ex: toilet paper during hurricanes
Circular flow model
how money flows from firms to households in a circle
How do households benefit firms?
They spend money on goods firms produce (revenue)and they offer their labor, land,or capital to firms
How do firms benefit housholds
They produce goods for consumers and supply wages
