economic systems & decision making 2 c h a p t e r
TRANSCRIPT
Economic Systems & Decision Making
2C H A P T E R
ECONOMIC SYSTEMS
THE MARKET SYSTEMPure Capitalism Laissez-faire
“Let it be”THE COMMAND SYSTEM
SocialismCommunism
ECONOMIC SYSTEMS
TRADITIONAL SYSTEM◦ Based on habits and/or customs
◦Tribal, indigenousMIXED ECONOMY◦Has elements of two or more systems.
TRADEOFFS
•Economic Freedom•Economic Efficiency•Economic Equity •Economic Security•Full Employment•Price-Level Stability•Economic Growth
ECONOMIC GOALS
COMPLIMENTS
The Market System
CAPITALIST IDEOLOGY
FREEDOM OFENTERPRISE& CHOICE
PRIVATEPROPERTY
SELF-INTEREST
COMPETITION
MARKETS& PRICES
FREEDOM OFENTERPRISE& CHOICE
PRIVATEPROPERTY
ACTIVE, BUTLIMITED,GOVERNMENT
SELF-INTEREST
COMPETITION
CAPITALIST IDEOLOGY
GLOBAL PERSPECTIVEIndex of Economic Freedom, Selected Nations
1 Hong Kong3 Ireland5 United States20 Belgium31 Spain48 France101 Brazil126 China134 Russia148 Venezuela156 Cuba157 North Korea
FREE
MOSTLYFREE
MOSTLYUNFREE
REPRESSED
Rankings among 157 nations, 2008
The Three Fundamental Questions...What will be produced?
THE MARKET SYSTEM AT WORK
The Three Fundamental Questions...
How will the goods be produced?
What will be produced?
THE MARKET SYSTEM AT WORK
The Three Fundamental Questions...
How will the goods be produced?
What will be produced?
Who will get the goods and services?
THE MARKET SYSTEM AT WORK
Those goods and services that make a profit.
WHAT WILL BE PRODUCED?
Profit = Total Revenue – Total Cost
Least Cost ProductionMaximizing output while minimizing cost.
HOW WILL THE GOODS ANDSERVICES BE PRODUCED?
• The market determines the price.
• Those willing to pay that price receive the goods and services.
• Income is the key.
WHO WILL GET THE GOODSAND SERVICES?
THE CASE FOR THE MARKET SYSTEM
EfficiencyIncentivesFreedom