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Economic Theories

Economic Theories Ec onomics is the study of how limited resources are used to satisfy people's almost unlimited wants. CAPITALISM - an economic system in which choice and individual incentives are emphasized. Businesses produce goods and service to try to attract buyers.

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Economic Theories

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  1. Economic Theories Economics is the study of how limited resources are used to satisfy people's almost unlimited wants. CAPITALISM - an economic system in which choice and individual incentives are emphasized. Businesses produce goods and service to try to attract buyers. Consumers try to find the best price for things they want to buy. Adam Smith, Scottish Philosopher who wrote The Wealth of Nations in 1776 FREE MARKETS - the idea that the government should place no restrictions on buyers and sellers LAISSEZ-FAIRE - French term meaning "to let alone". Stresses that the government should keep hands out of business

  2. Socialism an economic system in which the government intervenes to distribute resources more equally Government owns the basic means of production, determines the use of resources, distributes products and wages, and provides social service. After the Industrial Revolution, social reformers believed that there was so much productive capacity that no one should have to suffer or starve. Opponents of socialism believe that it stifles initiative and makes the society less efficient. Democratic socialism is a society in which citizens have political freedoms but in which the economy is manipulated to try to distribute resources more equally.

  3. Communism Karl Marx was a German philosopher who wrote The Communist Manifesto in 1848 He saw economics as a struggle between the working class called the proletariat and the middle class owners of capital called the bourgeoisie Marx believed that the owners (bourgeoisie) exploited the workers (proletariat) for their labor and "stole" the fruits of their work Marx thought that the workers would eventually get tired of being taken advantage of and would overthrow the owners and take their businesses. Communist countries took over businesses and had "command economies" in which the government would decide what would be made, what the prices would be and where the products would be distributed. They also tried to distribute wages evenly. Communist countries were bad at deciding exactly what to make and there was no incentive for people to work hard.

  4. Mixed Economies Most REAL economies are a mixture of these three ideas. The American economy is largely capitalism, but has socialist parts as well (welfare, social security, unemployment benefits, progressive tax, publicly owned utilities) China is a mainly communist country which has begun to allow small businessmen to start up their own businesses in a limited version of capitalism. Democratic Socialism is a mixture of socialism and capitalism with an emphasis on the equality of resources as idealized in socialism. Denmark, Sweden and Norway are Democratic Socialist countries.

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