economics 2.1- economic systems, microeconomics, adam smith

what goods and services will be produced?

how will goods and services be produced?

who will they be produced for?

3 questions economic systems address

Types of Economic systems

Pure market, pure command, mixed, traditional

refer to ppc knowtt and unit 1 vocab knowtt for definitions on this

economic models, ppcs, assumptions of PPC, ppcs irl

microeconomics

focuses on individuals’ choices within a single market

indiviudas deciding what to buy, what to sell, how much to spend, etc. ; specific to a market

Microeconomics pertains to

countries, cities, states, etc.

Macroeconomics pertains to

Adam Smith

Founder of modern economics; wrote “The Wealth of Nations”

“Wealth of nations”

a book about the need for free markets, no government inference, “the invisible hand” , property rights

The Invisible Hand

a metaphor for the unseen forces that move the free market economy

What kind of economy does the Invisible Hand most pertain to?

Free-market

gives people and businesses incentive to invest, improve, and trade because owners want safety/security to spend their money

Why is property ownership important to an economy?

ensure security, reduce conflict, and promite efficient resoruce allocation

What do clear property rights do?

Property rights

What is key for innovation, investement, and the functioning of the market

guide resources to most productive and channel goods to consumers

What do market prices do as part of the invisible hand?

1. People try to make money

2. Other people buy things

3. Good business do well, bad business don’t

4. More money is made

Steps of the invisible hand (market economy)

-Difficult enforcing property rights (no gov to enforce)

-Some have few resources to sell (disabilities, caregiving, etc.)

-Some firms try to monopolize market (no anti-trust laws)

-No public goods (roads, emergency services

-Externalties (pollution, natural disasters, etc.)

-Economic fluctuation (jobs lessen during recession, econ shrinks)

Issues with Pure Market Economies