Ch. 1 - The Capitalist Revolution

Outline: Capitalism and Economic Systems

1.1 How Capitalism Revolutionized Our Lives

• Definition of GDP per capita and its role in comparing living standards.

• Explanation of GDP (Gross Domestic Product) as the total value of produced outputs in a year.

1.2 Measuring Income and Living Standards

• GDP per capita calculation: total goods and services produced divided by population.

• GDP reflects the market value of final goods and services in a specified period.

• Relationship between GDP value and total income of citizens.

Disposable Income

• Definition: earnings minus transfers made to others.

Valuing Government Goods and Services

• Inclusion of government-produced goods/services in GDP:

  • Schooling

  • National defense

  • Law enforcement

The Starting Point: Nominal GDP

• Method of estimating market value using current prices of goods/services.

Real GDP and Price Changes Over Time

• Importance of measuring real GDP to assess economic growth.

• Comparison of nominal and real GDP.

International Prices and Purchasing Power

• Use of PPP (Purchasing Power Parity) to adjust GDP per capita for price differences.

• How PPP provides a more accurate comparison of economies.

1.3 Growth in Income

• Explanation of growth rate and its representation using a ratio scale.

1.4 The Permanent Technology

• Definition of technology in economics: machinery and processes that convert inputs into outputs.

1.6 Capitalism Defined: Private Property, Markets, and Firms

• Description of capitalism as an economic system with specific institutions.

• Economic system definition: organization of production and distribution of goods/services.

Institutions

• Rules and customs regulating production/distribution across families, businesses, and governments.

Capital Goods

• Definition: private property used in producing goods and services.

Market Transactions

• Characteristics that distinguish markets from other transfer methods:

  • Reciprocation of exchanges

  • Voluntary participation

  • Competition

Characteristics of Firms

• Definition: organization of production with distinct ownership and profit motives.

Defining Capitalism Precisely

• Overview of capitalism as a category of systems with varying characteristics across countries.

1.7 Capitalism as an Economic System

• Role of private property and markets in firm operations.

• Nature of production relying on privately owned inputs and decentralized market processes.

1.8 The Gains from Specialization

• Explanation of how markets enhance labor productivity through specialization.

1.9 Capitalism, Causation, and Historical Context

• Definition of natural experiments in economics to understand independent differences.

1.10 Varieties of Capitalism: Institutions, Government, and the Economy

Developmental State

• Definition and characteristics.

When is Capitalism Dynamic?

• Conditions for sustained growth in living standards:

  • Economic and Political conditions.

  • Factors that hinder dynamism in capitalism.

1.11 Economics and the Economy

• Definition of economics and its scope regarding interactions, production, and changes over time.