Homework Review and Capitalism

Homework Review Three Fundamental Economic Questions What to produce, how and for whom? Six Economic Goals: 1.Freedom 2.Efficiency 3.Equity 4.Growth 5.Security 6.Stability

Who decides what in different economic systems? Traditional Command Market mmand-economies/

Pure Market Capitalism Three P’s – Prices – Profits – Private Property Pure capitalism has NO government interaction!

Characteristics of Pure Capitalism Private Property Rights exist, are legal, and are enforced by the government. Pure capitalism is a price system. Prices are allowed to seek their own level as determined by the forces of supply and demand.

Characteristics of Pure Capitalism Resources including labor, are free to move in and out of industries in competing geographic locations. The movement of recourses follows the lure of profits- higher expected profits create an incentive fore more resources to go where those profits are expected to occur. Can you think of an example of this?

Characteristics of Pure Capitalism Those who take risks may be rewarded by higher profits. When those risks turn out to be bad business decisions, the risk takers lose money. Can you think of examples of this happening?

Characteristics of Pure Capitalism The four basic economic questions are all decided in a decentralized way by individuals. What and how much should be produced, who should produce what, how should it be produced, and for whom it should be produced are all left to the market.

Adam Smith Laissez-Faire = “let it be” or “leave it alone” Allow the markets to do what they want, no government interaction “Invisible Hand”

Capitalism in America Free Enterprise System- Americans are free to own and control the factors of production – Land, Labor and Capital Freedom of choice Private Property: The Constitution guarantees that people may own and protect their private property

Capitalism in America Profit incentive: what motivates people to produce the things that people want to buy Competition: the rivalry among producers or sellers of similar goods to win more business by offering the lowest prices or better quality – Easy in, easy out