Week 2: Economic Systems and Economic Thinkers Flashcards
Economics
is the study of how people manage their resources to meet their needs and enhance their well-being (quality of life).
Name the economic systems
- Nomadic Hunter-Gatherer Societies
- Agriculture and Establishment of Towns
–> Age of Empires (not a system but important)
- Feudalism
- Mercantilism
- Captalism
Nomadic Hunter-Gatherer Societies
Period: Paleolithic Period (2-3 million years ago)
Production
* Food (no surplus)
* Little innovation, risk-taking
Distribution
* Sharing, cooperative
Consumption
* Survival only
Agriculture and Establishment of Towns
Period: Neolithic Period (12,000 years ago
What changed?
Food can be stored now, so people settled.
Production
* Food (surplus)
* Innovation, risk-taking
Distribution
* Property rights established
Consumption
* Some consume beyond survival
Age of Empires
Period: Circa (2300 BC – 500 AD)
*THIS IS NOT AN ECONOMIC SYSTEM IT’S AN IMPORTANT ECONOMIC SYSTEM THAT AFFECTS OTHERS
Towns in the fertile crescent had access to better soil.
How do you think this led to the rise of various empires from the Egyptians to the Romans?
Production:
Better soil more food more people more food
Distribution:
more specialization more innovation
Consumption:
more technological and organizational development!
Feudalism
Period: Circa (500AD– 1500 AD)
Production
* Surplus small
* Little innovation
Distribution
* Hierarchical
* Paternalistic
Consumption
* Elites consumed beyond survival
Mercantilism
Period: 16th – 18th Century
Description
a nation’s power is based on its gold (accrued by trading)
Production
2-tier to 3-tier crop system
Small surplus
Distribution
↑ demand for non-food goods
A lot of trade
Consumption
↑ Wealth in gold and silver
They had more than enough
Capitalism
Period: 18th Century
A time with ownership and profit driven individuals.
Production
- Farms turned into factories.
- High production
Distribution
* A lot of trading
* Free trading
Consumption
* Increased consumption
Economic Systems: Main Take Aways
- Economic systems change as environment and social contexts change
- Surplus led to prosperity but also hierarchical systems
- Societies have been cooperative, paternalistic, and individualistic
- Empires rose and fell on the backs of slave labor
- Workers lost control of production process (modern day labor markets)
- Workers lost access to land (modern day market for land)
Market
A place where buyers and sellers come together. Supply and demand determine the price.
Adam Smith Belief
His belief: That free market capitalism is best. If everyone follows their own interests, competition is healthy, and the government plays a limited role.
The invisible hand theory:
He is known for the theory and metaphor of the “Invisible hand” that describes the unseen forces of self interest that impact the free market. In theory, consumers basing decisions on self interest create a positive outcome for the economy.
Adam Smith:
Firms (Supply)
Firms use their resources efficiently to produce things people want. But how?
- Division of labor and specialization
o Dexterity
o Saved time
o Innovation
Adam Smith:
How do firms try to increase efficiency and innovation?
- Edge out competition
o More profit
o Reinvestment
o More innovation
Adam Smith:
The role of trade and government
Free trade allows for bigger consumer market and thus production on a larger scale (more efficient)
Nobody tells firms, consumers, or workers what to do
