Economics Basics

I. The ism-s: capitalism vs. communism

capitalism communism
• politically & socially → democracy • politically and socially →
• economically → market economy totalitarianism/dictatorship
• economically → command
economy
 command economy
capitalism
(communism)
• characterized by: • characterized by:
• private ownership of • public ownership of virtually
resources and the use of a all property resources
system of markets and prices • the rendering of economic
to coordinate and direct the decisions through central
economic activity economic planning
• government’s role is limited
to protecting private property
and establishing an
appropriate legal framework
for free markets
 II. Capitalist Economy

• Scope of economics – the efficient management of limited resources

(land, capital, labour and entrepreneurial ability) to achieve the
maximum fulfilment of unlimited material wants

• Capitalism – an authentic self-regulating system motivated by the

self-interest of individuals and regulated by competition
 III. Capitalist Ideology
main institutions and assumptions

• private property
• freedom of enterprise and choice
• self-interest as the dominant motive
• competition
• reliance on the price and the market system
• a limited role for the government
 IV. Fundamentals of Market Economy
Market
Supply and demand
The law of supply & The law of demand

• Market – an institution or mechanism which brings together buyers and sellers

of particular goods and services.

• Supply and demand

- one of the most fundamental concepts of economics
- the backbone of market economy
- the key determinants of price
 • Demand – how much (quantity) of a product or service is desired
by buyers
• Supply – the total amount of a product or service available for
purchase

The law of supply (the higher the price, the higher the supply)
The quantity of a product supplied varies directly with its price.

The law of demand (the higher the price, the lower the demand)
The quantity of a product purchased will vary inversely with its price.
 v. macroeconomics / microeconomics

Macroeconomics – deals either with the economy as a whole or with basic

subdivisions or aggregates (e.g. total output, total level of
employment total income, aggregate expenditures, the
general level of prices, etc.) making up the economy

Microeconomics – deals with and focuses on specific units which comprise

the economy, giving them detailed consideration
 basic
basic nouns adjectives

economic
economy adjective meaning of or
the process or system by which goods relating to an economy or
and services are produced, sold, and economics
bought in a country or a region

economical
adjective meaning using a
minimum of resources
economics ("cheap")
a social science that studies how individuals,
governments, firms and nations make
choices on allocating scarce resources to
satisfy their unlimited wants