It is not from the benevolence of the
butcher, the brewer or baker that we
expect our dinner, but from their
regard to their self-interest.
-Adam Smith
NEEDS and WANTS
Politics
How is economics different than politics?
“Politics is war by other means.”
• Politics is used to decide who gets what,
when, and how much in any socio-economic
system.
• Other systems too!
What is the Economy?
The process or system by which goods and services
are produced, sold, and bought in a country or
region.
Or is it…
The large set of inter-related production,
consumption, and exchange activities that aid in
determining how scarce resources are allocated.
The production, consumption, and distribution
of goods and services are used to fulfill the
needs of those living and operating within the
economy, which is also referred to as an
economic system.
Or is it…
A social domain that emphasize the practices,
discourses, and material expressions associated
with the production, use, and management of
scarce resources.
Or is it…
A system of organizations and institutions that
either facilitate or play a role in the production
and distribution of goods and services in a
society.
But regardless of the economy
How a society structures its economic system is
largely a political and social issue.
The political and legal structure of a society will
govern how wealth can be accumulated, how
wealth and resources are distributed, and the
manner of competition permitted between
different participants in the economy.
Markets
An actual or nominal place where forces of
demand and supply operate, and where
buyers and sellers interact (directly or
through intermediaries) to trade goods,
services, or contracts or instruments, for
money or barter.
Markets
Markets include mechanisms for:
(1) determining price of the traded item,
(2) communicating the price information,
(3) facilitating deals and transactions,
(4) affecting distribution. The market for a
particular item is made up of existing and
potential customers who need it and have
the ability and willingness to pay for it.
Capitalism
The private ownership and control of the means of
production, and their operation for profit.
Central characteristics include:
capital accumulation
competitive markets
a price system determined by supply and demand
private property and property rights recognition
voluntary exchange
wage labor
Communism Vs. Socialism
In both communism and socialism, the people
own the factors of economic production.
The main difference is that under communism,
most property and economic resources are
owned and controlled by the state (rather than
individual citizens).
Under socialism, all citizens share equally in
economic resources as allocated by a
democratically-elected government.
Norway, Sweden, and Denmark
All employ similar predominantly socialist systems.
The democratically chosen governments of all
three countries provide free health care,
education, and lifetime retirement income.
As a result, however, their citizens pay some of the
world’s highest taxes.
All three countries also have highly
successful capitalist sectors. With most of
their needs provided by their governments,
the people see little need to accumulate
wealth.
As a result, about 10% of the people hold
more than 65% of each nation’s wealth.
(In the US 10% owns 90%)
CAPITAL
1. Wealth in the form of money or assets, taken as
a sign of the financial strength of an individual,
organization, or nation, and assumed to be
available for development or investment.
2. Accounting: Money invested in a business to
generate income.
3. Economics: Factors of production that are used
to create goods or services and are not
themselves in the process.
social credit/debt/obligation
The preservation of reputation in a society
where credit was the key to market
participation, and thus survival, wealth, etc.
In this case, the word credit means: the
social communication and circulating
judgement about the value of other members
of a community