ECON 2540 - Ch.3: A Three dimensional Approach to economics

Political Economy

a term we use for a theory that analyzes capitalism in terms of the three dimensions of competition, command, and change

Every economy can be analyzed in terms of what three dimensions?

Horizontal Dimension (Competition), Vertical Dimension (Command) and Time Dimension (Change)

Economic System

A set of relationships among people that organizes the labor processes all societies need to sustain

Competition (Horizontal Dimension)

refers to the aspects of economic relationships in which voluntary exchange and choice among a large # of possible buyers and sellers play the predominant role.

Why is competition considered a horizontal dimension?

It is a horizontal dimension because it can be thought of as involving a relative equality of power among those offering the choices, engaging in exchanges, and competing w/ one another

Example of Competition

When a motorist chooses to buy gasoline at a particular gas station, it is obvious he or she is making a choice between _______ suppliers

Command (Vertical Dimension)

refers to the aspects of economic relationships in which power plays the pre-dominant role.

Why is Command considered a Vertical Dimension

it is a vertical dimension because it necessarily involves people or groups who are unequal, some being "higher up" in a hierarchy than others. One person or group is "dominant" while the others are "subordinate"

Example of Command

A has power over B, by imposing costs on B. (or threatening to do so) A can cause B to act in to act in a way that is to A's advantage

Change (Time Dimension)

refers to the historical evolution of people and economic systems

Why is Change considered a Time Dimension?

Its because change always occurs through time.

How does change occur in economics?

because big profits can be made by changing the existing conditions - by building new and better machines, by designing novel products to meet previously unknown needs, by expanding production, etc.

How do we evaluate economic systems

the basis of how well or how poorly they organize economic activities so as to provide opportunities for all their participants to lead flourishing lives.

What are the 3 values of political economy?

Efficiency, Fairness, and Democracy

What does efficiency mean in terms of it being a value in the political economy?

it means that labour and inputs are used rather than wasted. (to use labour and inputs to produce USEFUL goods & services)

What are inputs?

resources used in the production process, and it includes effort, time, intelligence, creativity, raw materials, the natural environment, and machinery,

What does it mean to "use inputs well"?

means using them to enhance people's well-being by equipping them with the things and the free time needed to lead a full life.

What does fairness mean in terms of it being a value in the political economy?

means that people in an economic system suffer the burdens and enjoy the benefits of that economic system equitably.

Burden

Sacrifices such as the work necessary to produce goods & services

Benefit

refers primarily to the use of what is produced.

What would a fair economic system look like?

it would look like an ecosystem in which its burdens and benefits are distributed equitably

what does equitable mean?

everyone gets what they need

What does democracy mean in terms of it being a value in the political economy?

it is a value because of its ability to influence decisions in a society that has an effect on its individuals, and each of these individuals have a greater control in their lives.

What are the three characteristics of democracy

1) The exercise of power is accountable to those affected by it
2) Civil rights and personal liberties are guaranteed
3) Citizens have relatively equal access to political resources and influences

Which definition is related to one of the characteristics of democracy: "The exercise of power is accountable to those affected by it"

This requires periodic review and possible replacement of public officials by means of democratic elections

Which definition is related to one of the characteristics of democracy: "Civil rights and personal liberties are guaranteed"

examples of this characteristic is the rights to freedom of speech & assembly are essential for democratic decision making

Which definition is related to one of the characteristics of democracy: "Citizens have relatively equal access to political resources and influences"

A system in which everyone can vote but a few people (campaign contributors for example) have more political influence than everyone else is NOT democratic.