MICRO 1.8 - Capitalist institutions

capitalist revolution

emergence in 18th century and global spread of capitalism

capitalism

an economic system in which the main form of economic organization is the firm, where the private owners of capital goods hire labor to produce G+S to be sold.

main economic instutions = private property, markets, and firms

economic system

way of organizing the production and distribution of G+S in an entire economy

institutions

the various sets of laws and social customs regulating production and distribution

private property

the right to private property means that you can:
- enjoy your possessions in a way that you choose

- exclude others from their use if you wish

- dispose of them by gift or sale to someone else who then becomes their owner

private property may be owned by an individual, a family, a business, etc., anything other than the gov

markets

way of conecting people who may mutually benefit by exchanging goods and services through a process of buying and selling

ways other than markets to transfer goods and services

theft, gift, gov order

how do markets differ from theft, gift, and gov orders?

(1) reciprocity: transfer of a good on a market is reciprocated (w/ gift or thift it’s not reciprocated)

(2) participation is voluntary: there are mutual gains from exchange so people choose to do this

(3) competition: in most cases buyers and sellers are limited in prices they can set

firm

**most recent of the three components making up the capitalist economy

a way of organizaing production with these characteristics:

- 1+ individuals own a set of capital goods used in production

- they pay wages and salaries to employees

- they direct the employees through managers in the production of G+S

- goods and services are property of the owners

- they sell the goods and services on markets in order to make a profit

3 part definition of a capitalist eocnomic system are nested concepts

you need private property to have markets, and you need markets to have firms

economic system w/ private property

self-sufficient family-based production

economic system w/ private property and markets

market economy w/ family based production

economic system w/ private property and markets AND firms

capitalism

in a capitalist system, where does most production take place?

in firms

why are markets and private property essential for firms to function?

(1) outputs and capital goods are private property

(2) firms use markets to buy inputs and sell outputs

two examples of other types of economic systems

(1) slave economy

(2) centrally planned

what does capitalism do

combines centralization w/ decentralization, concentrates power in the hands of owners and managers of firms who are then able to secure the cooperation of large numbers of employees in the production process - limits the powers of owners and of other individuals, bc they face competition to buy and sell in markets

what distinguishes firms from fams and govs?

firms can quickly be born, expand, contract, and die

how does capitalism lead to growth in living standards?

it brought about technology and specialization which both allowed increases in output