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ECONOMY

ECONOMY. ECONOMY DEFINED. The economy is the social institution that determines what will be produced, how production will be accomplished, and who will receive what is produced. ECONOMIC SYSTEMS. Capitalism Socialism Mixed Economy. CAPITALISM. Adam Smith, The Wealth of Nations (1776)…

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ECONOMY

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  1. ECONOMY

  2. ECONOMY DEFINED • The economy is the social institution that determines what will be produced, how production will be accomplished, and who will receive what is produced.

  3. ECONOMIC SYSTEMS • Capitalism • Socialism • Mixed Economy

  4. CAPITALISM • Adam Smith, The Wealth of Nations (1776)… • “Every individual endeavors to employ his capital so that it produce may be of the greatest value….He intends only his own security, only his own gain, and he is thus lead by an invisible hand to promote an end which was no part of his intentions.”

  5. INVISIBLE HAND??? • The invisible hand is a metaphor used to represent the free play of economic forces that shape the marketplace and the broader economy. • Entrepreneurs: people who take risks in order to achieve success in the marketplace.

  6. CAPITALISM ASSUMES….. • FREE MARKET COMPETITION: The buying and selling of goods and services unencumbered by government rules, regulations, and planning (laissez-faire government). • RESULTS:a marketplace in which high-quality goods and services are available at the lowest possible prices.

  7. MORE ASSUMPTIONS... • PRIVATE OWNERSHIP OF PROPERTY: the property ownership rule that vests in the individual the right to own property unencumbered by government rules, regulations, and planning. • Individuals own the means of production (role of corporations/stock ownership)

  8. And still more…... • PURSUIT OF PROFIT: the system of trade in which those selling goods or services are permitted to charge an amount greater than their costs in producing or buying the good or service. • “Charge what the market will bear”-- unregulated markets.

  9. CRITICISMS OF CAPITALISM • Tendency to monopoly • Competition wipes out jobs and communities • Economic cycles • Ecosystem and environment problems

  10. PLUSES OF CAPITALISM • Most productive economies • Greatest range of high quality consumer goods • High level of technological advancement • Effective use of creativity, individual initiative, and risk taking

  11. SOCIALISM • SOCIALISM is an economic system in which the means of production are collectively owner and the state directs production and distribution. • MARX’S SOCIAL EVOLUTION. Industrial societies move from capitalism to socialism to communism (the classless society)

  12. CRITICISMS OF SOCIALISM • Excessive bureaucratization or “red tape” • Centralized control stifles creativity and initiative. • Little accountability for performance • Poor productivity: scare consumer or highly expensive consumer goods

  13. PLUSES OF SOCIALISM • Near universal coverage in education • Near universal health care • Near universal employment

  14. IN SUM: • Capitalism’s strength is in building a strong economy. Its weakness is in providing for those at the bottom of the system. • Socialism’s strength is in distributing economic and social benefits to a wide segment of the population. It weakness is its inability to build a strong economy.

  15. MIXED ECONOMIES • MIXED ECONOMY: An economy that mixes features of both capitalist and socialist systems, including both public and private ownership of property and limits on free-market competition • US features some social welfare. China permits some free enterprise.

  16. SOCIAL INSURANCE • SOCIAL INSURANCE: The idea tat the government is responsible for guaranteeing a minimum standard of living for everyone. • HOT BUTTONS IN THE US: Medicaid/Medicare, prescription drugs, retirement benefits, unemployment benefits, welfare

  17. CORPORATIONS AND THE ECONOMY • Interlocking directorate: the situation in which members of the boards of directors of corporations sitting on the boards of directors of other corporations thereby linking the corporations together. • The General Motors situation: GMs Board’s members link them both directly and indirectly with 700 other corporations.

  18. A CONSERVATIVE NETWORK • Directors “...are usually members of the upper class, sometimes own substantial shares of the companies on whose boards they serve. Their social backgrounds, together with their vested interest in corporate wealth and power often result in a highly conservative and elitist outlook.” (PROGRESSIVE OUTLOOK)

  19. A CHRYSLER BOARD MEMBER’S MEMBERSHIP • Earl G. Graves Ltd., (Chairman and CEO) • Pepsi-Cola of Washington, D.C., L.P., (Chairman and CEO) • Egoli Partners, L.P., (New Age Beverages, the Pepsi- Cola franchisee in the Republic of South Africa) • AMR Corporation • Aetna Life and Casualty Company, • Federated Department Stores, • Rohm and Haas Corporation, • the New York State Urban Development Corporation • New American Schools Development Corporation

  20. MICROSOFT’S BOARD

  21. CONGLOMERATE • CONGLOMERATE: a giant corporation composed of other corporations that produce a variety of products and that conduct businesses in several markets. • It is an attempt to stabilize profits, gain access to the technology, skills and experience of acquired company.

  22. UNEMPLOYMENT • LABOR FORCE: people who are employed plus the people who are unemployed but seeking work • UNEMPLOYED: people who are without jobs but are seeking work.

  23. U.S. UNEMPLOYMENT TREND

  24. UNEMPLOYMENT BY RACE AND ETHNICITY • As of December 2002: • Whites: 5.1% • African Americans: 11.5% • Hispanics: 7.9% • (not seasonally adjusted)

  25. SOME CONSEQUENCES OF UNEMPLOYMENT • JOB LOSS ANXIETY: the anxiety suffered by workers that is caused by the perceived insecurity of their jobs. • Economic and life style loss • Depression and other forms of psychological distress • Increased use of alcohol and other drugs • Family violence including battering

  26. FACTORS IN JOB SATISFACTION • INDEPENDENCE • CONTROL • CHANCE TO PERFORM WELL • OPPORTUNITY FOR ADVANCEMENT • OPPORTUNITY FOR PERSONAL GROWTH • INCOME • SECURITY

  27. SIGNS OF JOB BURNOUT • BOREDOM • APATHY • REDUCED EFFICIENCY • EXCESSIVE FATIGUE • FRUSTRATION • DESPONDENCY • FEELING DRAINED AND USED UP

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