market systems

Unit 1, pg 26-35

Economic System

A particular set of institutional arrangements and a coordinating mechanism for solving the economizing problem; Determines what goods are produced/how they’re produced/who gets them/ how to accomodate change/ how to promote technological progress

Differ by (1) who owns the factors of production and (2) the methods used to motivate, coordinate, and direct economic activity

market systems vs. command systems

Laissez-Faire Capitalism

Economic System in which gov’s role is limited to protecting private property and establishing a legal environment in which contracts are enforced and people interact voluntarily in markets to buy and sell goods, services, and resources

Extreme case, opposite of command system

Command System

Government owns most property resources, and economic decision making is set by a central economic plan created and enforced by the government

opposite of laissez-faire capitalism

Market System

capitalism, the mixed economy, the market economy, free-enterprise system

individuals and businesses seek to achieve economic goals through their won decisions, allows private ownership

Markets

places where buyers and sellers come together to buy and sell goods, services, and resources

Private Property

the right of private persons and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other property

Property Rights

encourages people to cooperate by helping to ensure that ONLY mutually agreeable economic transactions take place

Freedom of enterprise

entrepreneurs and private businesses are free to obtain and use economic resources to produce and sell goods/servicesF

Freedom of choice

1. owners can employ or dispose of their property and money as they see fit

2. allows workers to try to enter any line of work for which they’re qualified

   1. ensures consumers are free to buy goods and services that satisfy their wants within their budget

Self-Interest

Each economic unit tries to achieve its own particular goal

• entrepreneurs try to maximize profit or minimize loss

• property owners try to get highest price for sale/rent

• workers try to maximize utility

  • consumers try to obtain products at lowest possible price

Competition

requires:

• two or more buyers and two or more sellers acting independently

  • freedom of sellers and buyers to enter or leave markets, on basis of economic self-interest

Specialization

using someone’s resources to produce one or a few goods or services rather than the entire range of desired goods and servicesD

Division of Labor

Human specialization

• makes use of differences in ability

• fosters learning by doing

  • saves time

Geographic Specialization

works regionally and internationally; some places produce easier than others, so they produce things where best and swap the surpluses with each other

Medium of Exchange

any item that sellers were accept and buyers will pay for a good/service

money

way to exchange goods and services without engaging in a barter

Consumer Sovereignty

determination by consumers of the types and quantities of goods and services that will be produced with the scarce resources of the economy

Dollar Votes

“votes“ that consumers cast for the production of preferred products when they purchase those products rather than the alternatives

Creative Destruction

creation of new products and production methods that completely destroys the market positions of firms of existing products and older ways of doing business

Invisible Hand

the tendency of competition to cause individuals and firms to unintentionally but effectively promote the interests of society even when each individual or firm is only attempting to pursue its own interests