Chapter 2: The market System and Circular Flow Flashcards
3 Fundamental Economic Question
1) What to produce?
2) How to Produce?
3) Who to produce for?
What to produce?
How to decide what goods and services should be produced?
Present and future goods?
How to produce?
How should the goods and services be produced?
How should the production be organized?
Who to produce for?
Who would consume produced goods and services be produced for?
How should society distribute its fruits of production among its members?
Types of Economic Systems
Command vs Market
Who own property resources (land and capital) in a command system?>
The government
Who coordinates economic activity in a command system?
Central Planning committee
Examples of command systems
The soviet union, cuba, north korea, china
Who owns propert resources in a market system?
Private citizens
How is economic activity coordinated and directed?
Through the use of markets and prices
What is Laissez-faire?
pure capitalism where government’s role is limited to protecting private property and establishing an environment appropriate to the operation of the market system
What are mixed economies?
ex. industrial economies
Goods and services are allocated by a combination of free markets, regulations and other forms of collected control
7 Characteristics of the Market System
- Property rights
- Freedom of enterprise and choice
- self-interest
- competition
- markets and prices
- specialization
- active, but limited government
What are private property rights?
Individuals and businesses acquire, control, use and dispose of their property resources as they see fit
What does freedom of enterprise and choice mean?
Entrepreneurs and businesses have the freedom to:
obtain and use resources
produce goods and services of their choice
sell those goods and services in the markets of their choise
