AP Microeconomics Chapter 2

economics systems

set of institutional arrangements and a coordinating mechanism

laissez-faire/pure capitalism

minimal to no government intervention

command system

total governmental control

mixed/market economy

individual decision-making and self-interest, government regulated

market system characteristics

efficiency, incentives, freedom

what will be produced?

goods and services making profit continue to be produced, if not, they won’t

how will it be produced?

minimization of cost per units of output, right mix of labor and capital

who will get the output?

those with sufficient income

how will the system accommodate change?

preferences indicated by buying patterns, self-interest-driven expansion

how will it promote progress?

market system provides incentive for advancement

the “invisible hand”

companies follow self interest & produce most wanted product, therefore satisfying public interest

why do command systems fail?

too centralized, no incentive

a market system creates a continuous flow of…

money, goods, services, and resources

a market system is inherently a…

rewards and consequences system

who is subject to risk in a market system?

owners only

what are the benefits of restricted risk?

1) attracting and maintaining inputs, 2) focusing attention