test 1 - Chapter 2 Economics: The Creation and Distribution...

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Chapter 2 Economics: The Creation and Distribution of Wealth Business : Any activity that seeks profit by providing goods and services to others. Economics : The study of how society chooses to employ resources to produce goods and services and distribute them for consumption among carious 1. Basic Economic Theories a. Thomas Malthus (Early 1800s) i. Would soon be too many people for available resources ii. Neo-Malthusians: birth control and sterilization (China) b. Adam Smith 1776 i. Father of modern economics ii. Wealth of nations – Freedom is vital to survival of any economy iii. “Invisible hand” 2. Capitalism: An economic system in which most factors of production are privately-owned, and operated for profit. a. Private property b. Ownership/ profit c. Freedom of competition: The ability to do things different, new ideas to bring competition. d. Freedom of choice: *Prices are influenced by competition, and by supply and demand. Demand: Qty. of products people are willing to buy at a specific time. Baby wipes: Soldiers at war shifted demand curve “Shower” French Wine: We hate the French so we didn’t want their wine. Supply: Qty. of products that sellers are willing to sell at a specific time *Willingness as a seller. Highly Controlled : Communism (state ownership/ state control) vs. Moderate Control : Socialism (important business owned/operated by state. Some private property) *MOST ECONOMIES FALL HERE IN BETWEEN Low Control: Capitalism (free market economy) Fig. 2.4/ Page 51 Chapter 3 International Trade: What is international trade? It is business across borders Why trade internationally? A lot of items are here from other places. Free trade: International business, without government interference
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Comparative trade advantage: - A country should export products it produces efficiently. - A country should import goods it cannot produce efficiently Absolute trade advantage: - Think monopoly. 1500s, silk trade. Only China had silk, so people would travel All over the world to try and find is. Nobody could compete. Measuring international trade: - Balance of trade: o Good: Exports exceed imports(selling more than your buying) o Bad: Imports exceed exports. (Buying more than you sell) - Balance of payments: o Good: more money is coming in than going out o Bad: more money is going out than coming in. *United States has bad balance of trade, and bad balance of payments.
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This note was uploaded on 04/22/2008 for the course OLS 274 taught by Professor Goodrich during the Spring '07 term at Purdue University-West Lafayette.

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test 1 - Chapter 2 Economics: The Creation and Distribution...

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