1. Economics – Chapter 2
Economic system: the method used by a society to produce and distribute goods and services.
Factor payments: The income people receive for supplying something needed for production (land, labor or capital)
Patriotism: Duh! (love of country)

2. Goals of an Economy Efficiency: making the most of resources
Freedom: Freedom from government intervention
Economic security: Assurance against shortages, creation of safety net
Equity: Fair distribution of resources
Growth: Innovation though efficiency (the book has a long-winded definition)
Environmental protection
Health and safety
etc.

3. Economic Systems
Market-based economy: Laissez-faire, the basic U.S. model before 1935
Command economy: Government planned, centrally planned economy, such as socialism, fascism, etc.
Mixed economy: Combination of market and command. Most nations fall into this category.

4. Command Economy Communism Fascism/Nazism Democratic Socialism
State ownership of capital
Collectives: Solkholz
Authoritarian
Shortages
Black market
Small businesses allowed during NEP
Fascism/Nazism
State control of capital through regulation, taxes
Private “ownership” of capital, but nominal ownership
Slightly more efficient than socialism (Why?)
Democratic Socialism
Not authoritarian
Some state ownership of capital
Some state control of capital through regulation, taxes
Some black market
Some private enterprise allowed

5. Free Market
Usually exists before command market, because command market cannot innovate or create wealth.
Allows specialization, “creative destruction” of inefficient producers.
Supported strongly by Austrian School, mostly by Monetarists
Market: An arrangement that allows buyers and sellers to exchange goods and/or services (Free market: when government doesn't interfere with voluntary, private exchanges except to stop fraud or theft.

6. Adam Smith
The Wealth of Nations (1776), said government intervention was generally a bad idea
Described specialization of industrial revolution by the 20 tasks performed in a pin factory
Industrial revolution in Britain, 1770s
Industrial revolution in U.S.: 1820s in New England, 1870s in rest of U.S.
Urbanization of U.S., change in economy from agriculture (latter less than 2% of households)
Firm: business, company or organization that pools resources for a commercial gain

7. Command Economies
Socialism: Government ownership of the means of production
Communism: same as socialism, but under the Communist Party, and with political tyranny
Fascism: No (or little) government ownership of the means of production, but heavy government control of the same through regulations
Nazism: Adolf Hitler's variant of “National Socialism” that mixed some socialism with fascism (plus tyranny).

8. Socialism/Communism Karl Marx: The Communist Manifesto (1848)
Revolutionary: Various failed revolutions
V.I. Lenin 1917
Failure of Soviet Union 1989
Russia descends to corruption, gangsterism as the top communists become top capitalists using tax incentives and exclusive state contracts (and bribes to avoid regulation)

9. Democratic Socialism: Sweden
Some government ownership of industry
Heavy “safety net” for disadvantaged
Half of all monies taken in taxes, used for safety net.
Government-subsidized health care
Cutting edge medical treatments slow to be compensated, compared with private systems
Lower cost than U.S. health care system
Does socialism stifle innovation?

10. Mixed Economies United States: has much free enterprise, but:
Government's Federal Reserve Bank manipulates market interest rates
Government manipulates mortgage market with loan guarantees and bailouts
Government owns some auto industries ( )
Government has heavy regulation and tax incentives on a variety of issues, such as environment, “affordable” housing, agricultural prices, international trade, etc.

11. Free Enterprise Business cycle: The boom/bust of an economy
GDP: Gross Domestic Product; the measure of the value of all goods and services produced in an economy
Microeconomics: Study of a particular market or unit of an economy
Macroeconomics: Study of an entire economy

12. Elements of Free Enterprise
Legal equality
Free contact
Voluntary exchange
Competition
Private property rights
Ten Commandments
English common law
Defended by Catholic Church
Public disclosure laws: requirements for information that prevent theft and fraud
Public interest regulations: requirements for standardization of some industries

13. Common Exceptions to Free Enterprise
Copyright and Patent, legal monopolies for inventions and artistic creations
Infrastructure: Roads and rails
Welfare: Cash transfers from taxpayers to the impoverished.
Safety net:

14. Measurements of an economy
GDP
Unemployment/Employment
Poverty level
Inflation