Economics Key Terms: Capitalism, Liberalism, and Market Forces

Wealth of Nations

Book written by Adam Smith that is considered "the birth of capitolism"

Libertas

Freedom from constraints (liberty, liberate, liberal)

Economic System

A system that determines production/distribution of goods/services

Comunism

Government decides what gets made, what people want, how many are made, who makes it, who gets it, how much the product costs

Production

The act/process of making something more useful

Means of Production

Who had the money/resources to make products

Capitolism

Businesses and people in the democracy get to decide what gets made, what people want, how many are made, who makes it, who gets it, how much the product costs

Factors of Production

Land/resources, labor, capitol (plus ideas, knowledge, info)

Specialization

More products at a lower price (efficiency of production)

Comparative Advantage

Making products cheaper and better than others

Value Adding

Adding value to natural resources = wealth + value creation

Standard of Living

Quality of life, level of income/goods and services

Liberalism

Autonomy of the individual, favoring government with consent of governed

Conservitism

Respect for traditional institutions and resit social change

Economic Liberalism

Advocates for free market, limited government, autonomy

Free Market

An economy with little government control for buyers and sellers

The Invisible Hand

A metaphor for unseen forces controlling free market

Social Liberalism

Advocates for civil rights and socio-cultural issues (promotion of common good - versus individual)

Supply/Demand

Price of products depends on its availability

Scarcity

Limited resources + unlimited wants

Opportunity Cost

The value of the best alternative you give up when forced to trade-off (scarcity)

GDP

The total value of goods produced and services provided in a country during one year

C + G + I + NX = GDP

C (consumer spending)

G (government spending

I (business/industry spending)

NX (Net exports minus imports)

Economic Growth

When GDP grows

Role of government in the economy

• Taxes

• Regulations

• Welfare + social policies

• Infrastructure

• Tariffs