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31 Cards in this Set
- Front
- Back
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Factors influencing switch to market economy |
1.) Monetization- division of labor made bartering tough. Monetization allowed for division of lab and easier trade/economic activity 2.) Urbanization - allowed for factories 3.) Exploration - new goods to market 4.) Rise of Merchant class - entrepreneurship 5.) Breakdown of manorial system - better agriculture and allowed for people to work in factories |
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Law of increasing opportunity costs |
As more quantity is produced, opportunity cost will increase per additional unit |
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Principle of Scarcity |
PPF shows maximum production and opportunity costs exist as increase quantities. |
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Positive Economics |
How market really works |
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Normative economics |
How we think market should be -- max efficiency |
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scarcity |
unlimited desires, maximum resources |
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Economic System #1: Tradition |
follow parents career path, etc. Used to be more prominent |
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Economic System #2: Command |
Government decides - china, north korea, cuba |
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Economic System #3: Market |
Trade -Predominant today |
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Necessities for Factory |
1.) Technology 2.) Workers 3.) Urbanization 4.) Fuel 5.) Money for wages (monetization) 6.) Raw inputs 7.) Transportation 8.) Agricultural surplus |
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Transition from Serfs/Feudal --> Factory |
1.) Enclosure movement: kicked people off common land, leading to agricultural surplus -Common land did not maximize efficiency |
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Smith (3 Main Principles) |
1.) Division and Specialization of Labor 2.) Invisible Hand - Self interest also led to empathy 3.) Goal is everyone's consumption (better economy)--- his radical idea |
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Law of Population- Smith |
Low wages --> infant mortality --> fewer workers --> wages increase --> kids survive --> more workers --> low wages, etc... |
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Smith- Capitalist effect on standard of living (long run) |
Capitalist --> reinvest in business --> innovation --> rising standard of living ---bumpy increase |
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Nominal GDP |
Price of things at time |
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Real GDP |
Takes inflation into consideration |
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Marxism *influenced by darwin |
1.) Dialectical Materialism (conflicts from opposite) evolve and change through conflict |
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Labor Theory of Value *both Smith and Marx believed in this |
Value of product is equal to work put in Marx: led to surplus value led to exploitation Smith: led to price determination |
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Surplus Value |
workers effort minus wages paid price minus cost |
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Effect of Capital Accumulation |
High prices --> capital accumulation --> decreased profits and substitutes capital for labor Eventually substituting capital for labor leads to unemployment (decreased purchasing power), concentration of wealth in those that survive, and eventually immiseration and alienation of working class |
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Effects of Substituting capital for labor |
Homogenization Proleterization |
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How to increase surplus value |
Automation Increasing workers hours Low wages Make workers replaceable (so you can implement low wages, high hours) Machinery Poor working conditions |
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Unions and Why did marx hate them * marx didn't like them because they made capitalism look better (prevented revolt) |
Unions --> collective bargaining + political power -Can't replace all of them -led to child labor laws and 40 hour work week |
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Competition imperfect Marx and Smith believed this |
Smith: Invisible Hand: self interest --> overall good (low prices) Marx: competition --> conflicts (immiseration, alienation from concentration of wealth) |
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Capitalism productive, specialization Marx and Smith both believed this |
Smith: Rising standard of living Marx: homogenization, proleterization (commodification of love, etc. will be brought into economy) |
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Determinants of Supply |
1.) Expectations 2.) Number of producers 3.) related goods/services 4.) Technology 5.) Input prices |
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Determinant of Demand |
1.) tastes 2.) number of consumers 3.) expectations 4.) price of related goods or services -complement vs substitute 5.) income -inferior vs normal |
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Total surplus |
Consumer surplus + producer surplus |
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Price Ceiling inefficiencies |
The shortage causes these 1.) Misallocation of buyers 2.) Poor Maintenance 3.) Wasted time/effort of people searching 4.) Reduced quantity of product below efficiency level 5.) Black Markets |
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Price Floor inefficiencies |
Suplus causes these 1.) Misallocation of sellers 2.) wasted effort on finding buyers 3.) Inefficient low quantity (deadweight loss) 4.) inefficient high quality 5.) black market |
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Deadweight loss |
If demand price exceeds supply price Leads to temptation to break the law |
