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Chapter 2

This document provides an overview of different economic systems, including the market system, command system, and laissez-faire capitalism. It describes the key characteristics of the market system as private property, freedom of enterprise and choice, self-interest, competition, and the use of markets and prices. The market system is a mix of decentralized decision making and some government control. It also discusses how the command system in the Soviet Union, Eastern Europe, and China failed due to coordination and incentive problems.

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160 views11 pages

Chapter 2

This document provides an overview of different economic systems, including the market system, command system, and laissez-faire capitalism. It describes the key characteristics of the market system as private property, freedom of enterprise and choice, self-interest, competition, and the use of markets and prices. The market system is a mix of decentralized decision making and some government control. It also discusses how the command system in the Soviet Union, Eastern Europe, and China failed due to coordination and incentive problems.

Uploaded by

gaardi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 2

The Market System

Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Economic Systems
Economic systems
Set of ins,tu,onalized arrangements
Coordina,ng mechanism
Dierences in systems exist by
Degree of decentralized use of markets and
prices in decision-making
Degree of centralized government control
LO1

2-2

Laissez-Faire Capitalism
Ideal economy
Keep the government from interfering with
the economy
Power of government just needed to
Protect private property from theK
Provide a legal environment for contract
enforcement
People interact in markets to buy and sell
LO1

2-3

The Command System


The command system is known as socialism
or communism
Government ownership of resources
Decisions made by a central planning board
North Korea, Cuba, Myanmar

LO1

2-4

The Market System


The market system is a mix of decentralized
decision making with some government
control
Systems found in much of the world
Private markets are dominant force
Private ownership of resources
Self-interested behavior

LO1

2-5

Characteristics of the Market


System

LO2

Private property
Freedom of enterprise
Freedom of choice
Self-interest
Compe<<on
Market and prices

2-6

Global Perspective

LO2

2-7

Technology and Capital Goods


Advanced technology and capital goods are
encouraged
Specializa<on
Division of labor
Geographic specializa,on

LO2

2-8

Active, but Limited Government


Government may be needed to alleviate
market failures
Government can increase eec,veness of a
market system
Possible government failure

LO2

2-9

The Invisible Hand


The invisible hand
1776 Wealth of Na+ons by Adam Smith
Unity of private and social interest
Virtues of the market system
Eciency
Incen,ves
Freedom
LO4

2-10

The Demise of Command Systems


Command system was a failure
Soviet Union, Eastern Europe, and China
The coordina,on problem
Set output targets for all goods
The incen,ve problem
No adjustments for surplus or shortage

LO4

2-11

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