EE #14 – The Market Economy

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EE #14 – The Market Economy

Market Means by which ppl buy and sell something Types of markets – how do we best answer the 3 economic questions?

Traditional Market Economy Based on custom and/or religion Family determines your job US today – still some jobs are “male” and “female”

Pure Market Economy aka Capitalism Private (individual) ownership of all resources, no public (gov) involvement

Owners make all economic decisions - What to produce? Whatever will make a profit! How? Cheapest way possible! For whom? Those who are willing & able to buy it – consumer goods

Capitalism Adam Smith writes of this in 1776 “Invisible Hand” guides the economy w/o any regulation / gov controls Competition drives market: make the best product at cheapest price, ppl will buy it & you’ll make profit! No one says: you should charge $1 for your cheeseburger – the market decides the price!

Selfish?! Making rational self-interested decisions benefit all of society Why do employers give raises? Why do items go on sale?

Is capitalism good? Advantages: Disadvantages:

Capitalism ADV  : owners make $, make goods consumers want, prices stay low so ppl will buy them DIS  : labor = cheap & expendable, monopoly (1 person owns an entire sector of industry), no public (gov) services

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