exercises due: calendar week 42

 


Instructions:

  1. M1 is a good revision of what we did (or going to do -  depends when you do the exercises) in school. Read it!
  2. Watch the video M2 about the role of the state in the market economy and explain said role of the state. (The guy in the video talks pretty fast, so you might have to watch the video a couple of times. But it's pretty entertaining and a couple of his jokes are quite funny.)
  3. Extract the most important facts from the text M3 and explain what the GDP is. Think about reasons why the GDP is criticised as an indicator for wealth.
  4. Read M4 and comment on which of the seven alternatives is the best alternative in your opinion.

 

M1: The Social Market Economy

 

Since the mid-20th century, Germany's economic policy has been based on the concept of the social market economy (or 'soziale Marktwirtschaft'). The roots of this concept go back to Ludwig Erhard, who served as the first Minister of Economic Affairs of the Federal Republic of Germany from 1949 to 1963. The underlying idea of the social market economy is to protect the freedom of all market participants (Marktteilnehmer) on both the supply and demand side (Angebots- und Nachfrageseite), whilst also providing for a strong safety net (Sicherheitsnetz). [...]

 

The social market economy forms an important part of our free and open society, which is also characterised by solidarity. It has proven itself as an economic system that allows for prosperity (Wohlstand) and full employment whilst also providing welfare […].

 

In a social market economy, it is the markets that balance supply and demand via pricing (Preis): when goods are scarce and in high demand, their prices rise. This reduces demand while at the same time opening up opportunities for additional suppliers to generate profits. Suppliers will thus attempt to keep production costs as low as possible. This process ensures (stellt sicher) that the means of production (Produktionsmittel) are used efficiently, keeping consumer costs low. In order for this system to function effectively, it is crucial to ensure that there is sufficient competition within a framework (Rahmen) of open markets and to prevent individual players from exercising market dominance. In this way, market mechanisms lead to greater choice for consumers, motivate suppliers to develop new innovations and make technological advances, and distribute income and profits in accordance with individual achievements. It is one of the key responsibilities of the government to establish and maintain (erhalten) a regulatory environment (regulatorisches Umfeld bzw. Rahmengesetzgebung) that promotes well-functioning competition. [...]

 

The second pillar of the social market economy, besides free markets, is a strong welfare system. This means providing social security for those who are unable to provide for themselves, due to their age, health problems, or as a result of being unemployed. A social market economy is characterised not only by a level playing field for businesses and a positive investment climate, but also by high levels of social participation and by equality of opportunity.

 

[...] [C]entral elements in Germany's legal system - including its fundamental rights, […] and the freedom to choose a profession and place of employment - lay the foundations for the social market economy and prevent the balance from tipping towards the extremes of a centrally planned economy or an unfettered market economy.

 

(source: http://www.bmwi.de/EN/Topics/Economy/social-market-economy.html; abridged)

 


M2: The role of the state in the market economy


M3: The GDP....

 

What is the GDP? Click here to get to know more about it.


M4: GDP and criticism...

 

Click here to get to an article that discusses seven different ways of measuring wealth.