Market Economies and the Price System

Market Economies and the Price System

The Three Fundamental Economic Questions:

? WHAT is to be produced? ? HOW are these goods to be produced? ? FOR WHOM are the goods to be produced?

? 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Market Economies and the Price System

? Two Alternative Approaches to Answering the Three Fundamental Questions:

? Market Economy: an economy where most decisions of how, what and for whom to produce are made by individual firms, consumers and governments interacting in markets. In this economy, production and prices are determined in markets.

? 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.

Market Economies and the Price System

? Command Economy: an economy where most decisions of how, what and for whom to produce are made by a select group of individuals and firms that control the government. In this economy, production and prices are determined by the government.

? 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.

Key Elements of a Market Economy

? Freely determined price: a price that is determined by the interaction of individuals and firms in the market.

? Property rights: rights over the use, sale and proceeds from a good or a resource.

? Incentives: motivate people to take action, usually so as to increase economic efficiency.

? Freedom to Trade: allowing people to interact freely both within and beyond national borders.

? 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.

A Role for the Government

? Market failure: any situation in which the market does not lead to an efficient economic outcome.

? Government failure: a situation in which the government makes things worse than the market, even though there may be market failure.

? 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download