Đang tải... (xem toàn văn)
Chapter 2 - The market system and the circular flow. This chapter begins with a brief comparison of the command and market systems, transitioning quickly to a discussion of the institutional framework of the American market system.
Chapter The Market System and the Circular Flow McGrawHill/Irwin Copyrightâ2014byTheMcGrawưHillCompanies,Inc.Allrightsreserved 1ư1 EconomicSystems Set of institutional arrangements Coordinating mechanism • Differences in systems exist by: • Who owns the factors of production • What method is used to motivate, coordinate, and direct economic activity LO1 22 The Command System • Known as socialism or communism • Government ownership • Decisions made by a central planning • LO1 board North Korea and Cuba are last remaining examples of largely centrally planned economies 23 Global Snapshot The Two Koreas North Korea LO1 South Korea GDP $40 billion $1.3 trillion GDP per Capita $1800 $27,700 Exports $2.0 billion $355 billion Imports $3.5 billion $313 billion Agriculture as % of GDP 23 percent percent 24 The Market System • Known as capitalism • Private ownership of resources • Decisions based on markets LO1 25 Characteristics of the Market System • Private property • Freedom of enterprise and choice • Self-interest • Competition • Markets and prices LO2 26 The Market System LO2 27 Technology and Capital Goods • Advanced technology and capital • LO2 goods are encouraged Specialization • Division of labor • Geographic specialization 28 Use of Money • Makes trade easier LO2 29 Active, but Limited Government • Government may be needed to • LO2 alleviate market failures Government can increase effectiveness of a market system 210 The Four Fundamental Questions • What goods and services will be • • • LO3 produced? How will the goods and services be produced? Who will get the goods and services? How will the system promote progress? 211 What Will Be Produced? • Goods and services that create a • LO3 profit “Dollar votes” • Method for consumers to determine which goods will be produced • Determines which products and industries survive or fail 212 How Will the Goods Be Produced? • Minimize the cost per unit by using the most efficient techniques • Technology • Prices of the necessary resources LO3 213 Who Will Get the Output? • Consumers with the ability and • LO3 willingness to pay will get the product Ability to pay depends on income 214 How Will the System Promote Progress? • Technological advance • Creative destruction • Capital accumulation LO4 215 Invisible Hand • 1776 Wealth of Nations by Adam • LO4 Smith • Unity of private and social interest Virtues of the market system • Efficiency • Incentives • Freedom 216 Demise of Command Systems • Soviet Union, Eastern Europe, and • • • LO4 China System was a failure The coordination problem • Set output targets for all goods The incentive problem • No adjustments for surplus or shortage 217 The Circular Flow System RESOURCE MARKET •Households sell •Businesses buy BUSINESSES • buy resources • sell products HOUSEHOLDS • sell resources • buy products PRODUCT MARKET •Businesses sell •Households buy LO5 218 Businesses • Three main categories of businesses: • Sole proprietorship • Partnership • Corporation LO5 219 Businesses Partnerships (10%) Corporations (18%) Sole Proprietorships (72%) LO5 Corporations (82%) 220 The World’s 10 Largest Corporations LO5 221 U.S. Households Percentage of Earned Income LO5 Percentage of Consumer Expenditures 222 ... ( 72% ) LO5 Corporations ( 82% ) 2 20 The World’s 10 Largest Corporations LO5 2 21 U.S. Households Percentage of Earned Income LO5 Percentage of Consumer Expenditures 2 22 ... Freedom of enterprise and choice • Self-interest • Competition • Markets and prices LO2 2 6 The Market System LO2 2 7 Technology and Capital Goods • Advanced technology and capital • LO2 goods... Specialization • Division of labor • Geographic specialization 2 8 Use of Money • Makes trade easier LO2 2 9 Active, but Limited Government • Government may be needed to • LO2 alleviate market failures