Fiscal Policy

economy

the system that a society divides scarce resources

resources

anything that people want

abundant resources

things that people need or want for which there is an easily accessible supply that is larger than the demand

scarce resources

resources where there is either not enough of something or access to something is limited, society must decide how to divide it among its population

actually scarce example

gold

artificially scarce example

diamonds

factors of production

the things needed to make stuff

land

• allows people to grow crops and sell them our buildings for factories and offices
• it is, many times, essential to make stuff

capital

• is all of the things needed to produce things
• capital generally refers to money

capital goods

refers to buildings, pens and pencils, machines and all the other things needed to produce products

labor

• people own their time and talents and are able to lease those out to others in exchange for payment
• one of the biggest parts of the economy: people working + getting paid for it

ways to set up and economy?

capitalism

who developed capitalism? and how?

• Adam Smith
• his book The Wealth of Nations (1776) laid out the foundations of Capitalism

private ownership

• important part of capitalism: should be a lot of private property

Laissez-Faire situation

the government should do nothing but insure that people do not physically hurt others and provide for defense of the society

the market

• a situation where a society allows goods and services to be sold

free market

has very little government interference

the invisible hand

greed and self-interest are considered good; a belief if everyone acts in their own self-interest, everything will work out for the best

the invisible hand the government shall not…

try to help people who are struggling or limit people who are thriving

self interest acts as an "invisible hand" …

making sure the economy works well

competition

a capitalist economy works best when companies are making any one thing, competing against each other

in theory, some of the benefits of competition are:

• products will be of good
• prices will be low
• people will have choice

monopoly

when one company has a very large share of the market

in a monopoly, a company can…

• raise prices
• put out an inferior product
• keep other companies from competing

supply and demand

dictates how much of a product will be bought and sold

supply

works according to common sense; how much of something made/supplied

demand

also follows common sense; more the cost, less people want it

strengths of capitalism

• creativity and ingenuity
• hard work
• independent

disadvantages of capitalism

• wealth inequality
• lack of transparency
• social good
• boom and bust
• short term thinking