Outline chapters 1-5 - A New View of Comparative Economics...

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A New View of Comparative Economics Chapter 1: Types of Economic Systems Several changes in economies recently o Fall of Soviet communism (centrally planned economic system) o China restructured o Spread of capitalism o European Union What is an economic system? o 3 most important economic decisions Production decision - what goods and services to produce and quantities Choice of technique decision – how goods will be produced (factors, organizations) Distributional decision – who will receive the benefit of production o Mechanism to make this decisions = economic system Economic Institutions o Households – suppliers of labor and consumers of bulk of goods and services Supply capital and land to productive sector o Government Reform or policy change Instruments (income tax, money supply, etc.) Changes in instruments called measures o Enterprises Principal/agent problems – hard to get workers/management (agents) to act in the way that best serves the interests of the owners (principals) o Labor Organizations o Non-governmental Organizations Not for profit 3 groups providing services centers of common interest lobbying groups o Markets Rules o The Legal Framework Law necessary for contracts, property rights, tax system, health codes, regulations, min wage, etc. Glass-Steagall Act – mandated formal separation of activities of investment and commercial banks Universal banks – in Germany, very different from US o Rules Within Organizations Institutions must self-govern behavior o Procedures Day to day running
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o Custom, Culture, and Tradition Makes each economic outcome/system unique Economic Resources o Natural Assets Minerals and naturally occurring vegetation Water resources and topography that facilitates communication Stock of productive agricultural land – can be improved by human made technologies o Produced Assets Human-made capital created in previous periods Industrial Capital - Machines, factories, inventories Social Capital – roads, bridges, schools o Human Capital Skills and education of individuals Supply capital and land to productive sector How Wealth Varies Among Nations o World Bank Study to rank nations by wealth The Determination of Economic Outcomes o Measurable consequences that are a result of the interaction between resources, institutions, and rules o O i =F i (NR i , PA i , HC i ) O – economic outcomes NR – natural resources PA – produced assets HC – human capital Some Fundamentals of Economic Systems o The Nature and Extent of Individual Rights Property Ownership and Property Rights Most important economic issue – whether individuals are allowed to own “the means of production” 3 property rights o control right – the right to use a good or resources in the way that the “owner” of the property sees fit o cash-flow right – the right to receive income or other benefits
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