CH2: Market system and circular flow Flashcards
What are the type of market system?
Laissez faire capital, command system, market system
Command system
where most resources are owned by the government and economic decisions are made by them.
Market system
where most resources are owned by private individual and price mechanism is used to allocate resources.
Laissez faire system
where government just provide the key decisions and business owners are left to make their own decision
What are the benefits of property rights?
Encourages, investment, innovation and economic growth
Encourages owners to improve their property
protects property through patents
enable people to spend time and resource
What does market system provide individuals with?
Freedom of choice and entrepreneurship.
What is the benefit of competition?
it discourages abuse of power and motivate seller to improve their products and sell it at a lower price.
How does a resource and product market operate?
Resource market: household sell and business buy
Product market: Business sells and household buys
What is the goal of households?
Utility-satisfaction
What is the goal of business?
Profit maximization
