1 / 15

The Market System and Circular Flow

The Market System and Circular Flow. ECO 2013 Chapter 2 Prof. Maria Mari 2007. Economic Systems. A particular set of institutional arrangements and a coordinating mechanism to respond to the economizing problems. Determines. What goods are produced? How they are produced? Who gets them?

Lucy
Download Presentation

The Market System and Circular Flow

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Market System and Circular Flow ECO 2013 Chapter 2 Prof. Maria Mari 2007

  2. Economic Systems • A particular set of institutional arrangements and a coordinating mechanism to respond to the economizing problems.

  3. Determines • What goods are produced? • How they are produced? • Who gets them? • How to accommodate change? • How to promote technological progress?

  4. Economic Systems differ • Who owns the factors of production • The method used to motivate, coordinate, and direct economic activity • They answer the economic questions

  5. Economic Systems • Market System or Pure Capitalism • Characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets. • No government intervention in the economy • Adam Smith

  6. Private property Encourage Investment Innovation Exchange Maintenance of property Economic growth Freedom of enterprise and choice Competition Market and prices Technology and capital goods Specialization Division of labor Use of money Active but limited government. Characteristics of Market System

  7. Five Fundamental Questions • Which specific goods and quantities will be produced? must make profit consumer sovereignty • How will the goods and services be produced? • Combination of technology and resources • Capital intensive or labor intensive • Who will get the output?

  8. Continued • How will the system accommodate change? • How will the system promote progress? • Technological advance • Capital accumulation • Economic growth

  9. Economic System • Pure Command System • An economic system characterized by the public ownership of resources and centralized planning • Government intervention in all areas • Karl Marx • North Korea and Cuba

  10. Economic System • Mixed Economy • An economic system characterized by private ownership of some resources and the public ownership of other resources. • Some markets unregulated • Some markets regulated.

  11. Answers to Questions

  12. Economic Decision Makers • Households • Supply labor, capital, natural resources • Business • Government • Demand resources that households supply • There interaction determines how an economy’s resources are allocated

  13. Goods and Services • Resources are combined in a variety of ways to produce goods and services • Good – a tangible item • Service – an activity • Scarce if the amount people desire exceeds the amount available at a ZERO price

  14. Economic Decisions Makers • Markets • A set of arrangements through which buyers and sellers carry out exchange at mutually agreeable terms. • Product • Goods or services bought and sold • Resource • Resources or services of a supplier are bought and sold

  15. $$$ $$$ Firms Households $$$ Circular Flow Model Product Goods and services Goods Labor, capital, land Labor, capital, and land $$ Resource

More Related