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Unformatted text preview: PO Final Notes Political Economy 1. Definition: Combination of politics and economy. Political order depends on the economic system to generate goods and services for the survival and prosperity of its citizens. Allocation of resources/ 2. 3 Factors of Production : Land, Labor, Capital 3. Land: Ground plus any raw materials (i.e. coal, ore and bananas) on or in the ground 4. Labor: Productive input of a human (work) 5. Capital : non human productive input from other resources (i.e. financial resource, machinery, technology 6. Households: control factors of production. Consumers 7. Firm/Producer ; Acquire combo of resources (factors of production) in order to produce a good. Good can be a product or a service. 8. Intermediate Goods : goods used and acquired in order to make more complicated goods 9. Consumer : Second role of household. When it wants to acquire a final good. Offers something of value ($) to firm in exchange for the good itself 10. System of Payments : Firm pays something to household that controls productive resources necessary for firm to produce goods. Household as consumer must pay something to firm in order to get final goods. 11. Equilibrium Point : In theory with enough producers and consumers making exchanges, the price of a good reaches a perfect balance point between supply and demand. 12. Market Economy : Total Private Control. Laissez Faire Factors of Production/Control: Each actor has direct personal control over all of their own factors of production. Can decide who they will offer work to and the type/amount of resources they will accept in exchange for work. No control of value attached to factors. Household/firm motivated to maximize value associated with resources and goods they control Goods Produced : Actors/Firms make their own separate decisions about production in an attempt to maximize their own utilities. System is demand oriented. Max profit. Value of Resources/Goods : Market via invisible hand based on equilibrium of supply and demand. Distribution of Goods/Resources : Based on summation of the actions of all consumers and producers in the market. Invisible hand of market Role of State : Minimal role in political economy. Enforces the social contract protecting all from violence or law breakers. Passive in productive system. Protects from external environment. In meeting responsibilities, state might purchase some resources, might levy minimal taxes and min, affect import and export activities of firms. Invisible Hand : Summation of the actions of every household and every firm regarding the uses of the factors of production. Interaction of supply and demand forces. 13. Command Economy : Total State Control Factors of Production/Control : State owns all significant factors and land, labor and capital Goods Produced : state devises a detailed economic plan tat specifics what level/amount of each good will be procured. System is supply oriented Value : state sets value/price on all exchanges.: state sets value/price on all exchanges....
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