economics and society

THE ORGANIZATION OF ECONOMIC ACTIVITIES CHAPTER 17

THE ECONOMIC INSTITUTIONS

 Government organizations

 Business firms

 Unions

 Laws

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ECONOMIC ASPECTS OF CULTURE

 Shapes the mores and the institutions of every society

 Determines what is right and what is wrong  Property rights

 Some social institutions:  Have economic aspects of major importance

 Marriage takes important economic obligations

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THE NATURE OF AN ECONOMY

 Social organization of society that produces/distributes economic goods  Modern economies are complex

 Four functions of economy 1. Determine kinds of goods to be produced 2. Determine amount of each good to be produced 3. Determine resources allocated to a good’s output 4. Determine ultimate division of goods

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THE GREAT ECONOMIC PROBLEM FACING MODERN SOCIETIES

 How can scarce resources satisfy as fully as possible the ever-expanding wants of all members of a society?  Economizing

 Allocating

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THE OTHER ECONOMIC PROBLEM FACING MODERN SOCIETIES

 What will people do with their lives once the standard economic problem is solved?

 Before the standard economic problem was solved, work provided fulfillment and satisfaction for people

 What will give us life satisfaction when humans are no longer needed?

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EVOLUTION OF ECONOMIC SYSTEMS

 Feudalism (some free workers/traders)

 Mercantilist system (government controlled)

 Market economy (laissez-faire capitalism)

 Pragmatic market economy (modern)

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INFLUENCE OF SOCIALISM

 Socialism developed in mid-1800s in reaction to problems caused by nonregulated market economy  Utopian socialists promoted peaceful change

 Radicals such as Marx and Engels proposed revolt against organized social structure

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DEFINING SOCIALISM

 Soviet-style socialism: government makes decisions about allocation/distribution of goods

 Communism: a type of Soviet-style socialism  Communist Party plays key role  Includes key political beliefs from communist writers  Sees capitalism as doomed

 Socialistic government: government owns means of production, promotes income equalization

 Many forms of socialism

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PLANNED AND UNPLANNED ECONOMIES

 Unplanned economies rely on markets to control economic decisions  United States  Western Europe

 Planned economies rely on government  Former Soviet Union  China

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HOW DOES A MARKET ECONOMY WORK?

 Market economy is an economic system relying on the initiative of private citizens for production of economic goods  No production quotas by government  Prices/profits not set by government  Chief incentive is profit  In practice, government regulates to some degree, provides legal

framework

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FIGURE 17.1: MODEL OF A MARKET ECONOMY

FIGURE 17.2: SUPPLY VS. DEMAND

MODERN ECONOMIES ARE PRAGMATIC MARKET ECONOMIES

 Few differences between modern planned and unplanned market economies

 Pragmatic market economies  Use markets as a central way of allocating resources

 Regulate and control those markets

 Change market outcomes to varying degrees

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MODERN DIFFERENCES?

 All modern economies are pragmatic market economies  Government involvement to some degree  Pragmatism is driving force  Differ only by institutional/historical settings  Affects how government interacts with market  In China, citizens expect government to step in  In United States, reliance on “rule of law” to limit government

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