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| set of institutional arrangements and a coordinating mechanism |
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| aka Socialism/Communism, government owns most property resources and economic decision making occurs through a central economic plan |
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| private ownership of resources and use of markets and prices to coordinate and direct economic activity |
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| 'let it be' pure capitalism without government regulation |
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| right given to those under a capitalist economy, allows owners to dispense of property resources as they see fit |
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| ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods/services and sell them in their chosen markets |
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| enables owners to employ or dispose of property and money as they see fit, allows workers to enter any line of work (if qualified), and ensures that consumers are free to buy the goods/services that best satisfy wants and their budgets |
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| motivating force of economic units as they express their free choices |
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| Capitalism depends on competition among economic units. The basis of this is freedom of choice excersised in pursuit of a monetary return |
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| an institution or mechanism that brings buyers and sellers into contact |
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| market economies rely heavily on specialization. 'Self-sufficiency breeds inefficiency...' |
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| the idea that one should focus on work involving something they're good at. Focus is on one task at a time, eliminating a shuffle between one task and a second. |
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| money - makes trade eaiser by offering something that everybody wants, instead of the surplus of goods you have that others may not want to exchange for |
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| exchange of one good for another, without money |
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| when you want product A, and the owner of product A coincidently wants product B, which you own |
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| Five Fundamental Questions |
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What goods/services will be produced?
How will they be produced?
Who will get the goods/services?
How will the system accomodate change?
How will the system promote progress? |
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| that depends on what the target consumer group wants |
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| the idea that consumers have the power to 'vote' for certain products and boycott others |
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| consumers 'vote' by buying certain products over others (consumers spend income on goods they are most willing and able to buy) |
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| in combinations of resources that minimize the cost per unit of output |
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| why do you need to produce at low cost? competition eliminates those with high prices. It means that firms must employ the cheapest production techniques, using the right mix of resources, etc |
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| anyone who is willing and able to pay for it |
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| How will the system accomodate change? |
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| consumer prefrences are dynamic, so the system used to produce must be able to handle change |
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| How will the system promote progress? |
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| Society as a unit desires economic growth and higher standards of living. |
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| when firms and resource suppliers want to further their self-intrest and end up promoting the public/social intrest as if guided by an 'invisible hand' |
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| Why do command systems fail? |
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| micromanagement of all industries is bound to failure, because when one industry fails to meet its output target, it causes a chain reaction and everything fails. Also, there is no incentive to put effort into your work. |
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| a diagram that shows the flow of money between households and businesses via products and resources (human labor) |
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| the place where goods/services produced by businesses are bought and sold |
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