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The Market System and The Circular Flow: Mcgraw-Hill/Irwin
The Market System and The Circular Flow: Mcgraw-Hill/Irwin
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
The Market System
• Known as capitalism
• Characteristics of market systems:
Private property
Freedom of enterprise and choice
Self-Interest
Competition
Markets and prices
• Australia, Switzerland, and the U.K.
LO1
Global Perspective
Index of Economic
Freedom,
Selected Nations
LO2
Technology and Capital Goods
LO2
Active, but Limited Government
• Government may be needed to
alleviate market failures
• Government can increase
effectiveness of a market system
LO2
The Five Fundamental Questions
• What goods and services will be
produced?
• How will the goods and services be
produced?
• Who will get the goods and services?
• How will the system accommodate
change?
• How will the system promote
progress?
LO3
What Will Be Produced?
LO3
How Will the Goods Be Produced?
LO3
Who Will Get the Output?
LO3
How Will the System Change?
LO4
How Will the System Promote Progress?
• Technological advance
• Creative destruction
• Capital accumulation
LO4
The “Invisible Hand”
LO4
Demise of Command Systems
RESOURCE
MARKET
•Households sell
•Businesses buy
BUSINESSES HOUSEHOLDS
• buy resources • sell resources
• sell products • buy products
PRODUCT
MARKET
•Businesses sell
•Households buy
LO5
Businesses
LO5