Chapter 5 Key Economic Questions Society Must Answer

I. Capitalism Answers the Key Economic Question one video   
II. Market System Evaluated
III. Other Economic Systems one video
IV. Middle Class Economic Questions
V. More Readings
VI. Classics 1984 to The Worldly Philosophers and videos
VII. Concise One-Page Chapter 5 Test Review

Return to Economics Internet Library     Updated 9/24/18         Please link to use as textbook/supplement and 

I. Capitalism answers the key economic question

     A. What to produce?
           1. Which goods?
               a. Those that can be sold at a profit, consumers vote with dollars
               b. Accounting Profit: The amount by which total revenue exceeds
                   accounting costs (rents, wages, and interest) Note these are
                   three of the four
Factors of Production    
               c. Normal Profit
                   1. Amount received for enterprise
                   2. Considered by economists to be a cost
Economic Profits
                  1. The amount by which total revenues exceed all "Factor" costs. Some think
                      of it as a surplus.
                  2. Expanding industries have economic profit. 
                      a) Bill Gates, founder of Microsoft, has earned many
billions of dollars. 
                      b) So has Sam Walton of Wal-Mart 
Lester C. Thurow Profits, The Concise Encyclopedia of Economics.  
Difference between accounting economic and-normal
        2. How many goods?
            a. Level of demand and efficiency of supply determine output.
            b. Society determines total demand (who works, how often and for how many years).
            c. Success of economic system determines efficiency of supply.
Wealth Hits Another Peak. Time to Celebrate or Worry? 8/1/17
 Editor's Note: Income distribution id a political question.

    B. How to produce?
          1. Companies must be competitive
          2. Competition is the "Invisible Hand" assuring
              a. High quality goods are produced.
              b. Efficient production methods are employed.
              c. Prices and profits are reasonable.
              d. For more read
Adam Smith and the invisible hand by H Joyce-Plus magazine.

         3. Technology and innovation are instrumental to success.
. Who will receive production?
         1. Those willing and able to pay
         2 .Function of income, savings, and attitude toward debt financing
         3. In a Mixed Economy the government has a say in who receives production.
        4. Is the answer everyome?

         4. Readings on Government Affecting Wellbeing
How Tax Competition Benefits Workers – Romina Boccia & Julia Howe, Daily Signal
             b. Capitalism, Socialism, and Unfreedom – Paul Krugman, New York Times
             c. Middle Class Economics
 D. How will the economy adapt to changing environments?
         1. Today's economic environment is changing rapidly because of the communication
         2. Magnitude of change is similar to that which occurred in the last quarter of the
             19th century. 
             See Economic Normality 1945-2015
                    World Changed and Good Jobs Disappeared
                    Why the Fed simply doesn't get it [effect of end of inflation in our flat world]
         3. Companies and individuals must "adapt or be gone." 
         4. Capitalism allows creative destruction to work. 
         5. Recently technology has changed rapidly and people are being adversely affected 
             a. Normally, political forces would attempt to slow creative destruction.
             b. But the 1990's was the decade of free enterprise with little creative destruction talk.
             c. Perhaps the next recession will slow down the free market revolution.
             e. Readings Should California Ambitious Climate Policy That Should Be a Model for the World

                 What is Capitalism? for a socialist view of economic questions and capitalism.

Unit I Review What and how to produce, Who receives production,
 adapting to changing environment

Economic Questions: 
Do Economists Lie?

For Trump
Increase Economies Growth 
Tax Cuts Success?
Inflation's Back, Trouble Ahead?  
Stocks Too High?  
5. Recession Coming?

6. Causes of Wage Stagnation
   Wage Stagnation Solutions

Long-Term 1. Will Inflation/Growth Tame Deficits 
 Will Debt End Capitalism 
Job Loss to AI 
Dollar Privilege Continuation 
5. Disposition-Illegal Immigrants
6. Is Income Inequality Affecting Growth   
7. Will Stagnate Income Continue  
8. Russia/China U.S. Adversaries

9. Understanding China

Economics is About Reducing Scarcity

Who Will Receive Production is a Political Question

II. Market system evaluated
    A. Advantages
          1. Resources allocated efficiently
          2. Economic freedoms abound (freedom of enterprise and economic choice) 
    B. Disadvantages
         1. Too dependent upon competition  which is often eroded by monopoly power. Waste and 
             inefficiency result because of monopoly power exercised by business, unions,
             governments, and interest groups.
         2. Inequitable distribution of income (economic survival of the fittest)
         3. Market failure occurs 
             a. Not all costs (pollution) and benefits (public health) are properly accounted for. 
             b. Why? because measuring their cost and benefits in dollars is difficult and subjective.
         4. Political process sometimes interferes with creative destruction.
    C. Current Topics
         1.  Basic Characteristics of Capitalism
         2. Political process sometimes interferes with creative destruction affecting efficiency
Modern Capitalism has many new features

Criticism of Modern Capitalism    

Unit II. Review Efficiency and freedom must be balanced with need for regulation and income inequality.


  III. Other Economic Systems
  A. Introduction
           1. Pure capitalism of Adam Smith never existed.
           2. Recent economic systems are
Mixed Economies
Capitalism and Socialism mxed
Democratic Capitalism vs. Capitalistic Democracy
      B. Other Economic Systems         
1. Socialism
 has some collective ownership and management of economic resources that
                 are more equally distributed.
See History of Socialism
Democratic Socialism as practiced in Western Europe has public ownership of key
                 industries such as transportation and communication.
                  a. Economic systems of Europe began moving away from socialism toward capitalism
                      in the late 1970's.
Margaret Thatcher former prime minister of England started this trend.
Ronald Reagan agreed and stressed the market system during his presidency. 
                 d. Capitalism and Socialism
Capitalism vs. Socialism Crash Course Video in World History
                         #33 uses humor teaching the basics.
Laissez fair Capitalism vs. Socialism Video See Social democracy 

                        Editors Question: Will China's system
Democratic Socialism?
  3. Communism is the ideal of those practicing a "Marxian  system. " 
Bolsheviks wanted immediate revolution.
                        a. 19th century philosopher
Karl Marx created the system.
                        b. Wealth is collectively owned and managed in this
planned command economy.
                        c. The 
Paris Commune of 1871 along with the French Revolution explains why so
                            many feared change promised by new liberal economic systems.
                        d. Some equate communism with a totalitarian political system democratic
                            communism has never existed.
                        e. This very left pro-labor anti-religious economic philosophy was despised
                             by most Western Oligarchs many of whom preferred Nazi Fascism over
                             any brand of Communism

                        f. Ten Questions and Answers About Americas Big Government


              Unit III. Review Socialism has government ownership and management
                           of large-scale means of production, Communism has
equal distribution of production and wealth

Some Criticize Dramatically

Some Question his motives as  Michael Moore's
 estimated net worth is  50 million dollars.


Ronald Reagan and Margaret Thatcher at the White House,
16 November 1988  Click to enlarge.

One-Page Economic Issues

Has Capitalism Failed?   Criticism of Modern Capitalism     
Health Coverage
Elizabeth Warren’s Blames Oligopoly Power

Political Economy Video

Middle Class Wellbeing  Middle Class Economics  
Middle Class Safety Net
Is Capitalism to Blame for Middle-Class Plight

Individual Issues   World Changed and Good Jobs Disappeared
Economic Wellbeing
  Economic Future of Our Children

Country Issues  Federal Deficit Problem    Can We Afford Entitlements
Taxing the Rich
   Everyone is on Welfare  Economically Less Dynamic States
Middle Income Stagnates
   Solving the Lack of Good Jobs   
Income Inequality Analysis and Cures  

Public Policy Affects Income Inequality  
Income Inequality Exposed   Are Child & Youth Protected
Prime Age Males 25-54 Work Less

Political Issues  Is Politics About the Money?
Look Out the Window Economics
Should Tea Party Share Its Debt Tea?
Why is Poverty Controversial?
Is the Country in Trouble?  Economics Exposed

International Issues   Is Russia a U.S. Adversary? 
Lost International Greatness
Lost Economic Greatness
Free Trade Solution or Problem
The Problem of Terrorism

Recent Terror Information


Capitalism Not Cause of Middle-Class Plight  

Economics Exposed   Everyone is on Welfare

Is Financial Aid Welfare?   College Tuition Not Going Up Rapidly











Primary Cause was Baby Boomers and Post WW2 Prosparity