Chapter 2: The Market System and the Circular Flow
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7 Terms
Laissez-Faire Capitalism
Keep the government from interfering.
Protect private property from theft
Have a legal enviroment for contract enforcement
The Command System
Known as socialism or communism
The Market System
A mix of decentralized decision making with some government control.
Creative Destruction
The hypothesis that the creation of new products and production methods destroys the market power of existing monopolies.
The invisible hand
The tendecy of competition to cause individuals and firms to unitentionally but effectively promote the interests of society even when each individual firm only attempts to pursue its own interests.
Condition Problem
Must correctly set output targets for all goods and services.I
Incentive Problem
No adjustments for surplus or shortage.