4 C H A P T E R The Market System
CAPITALIST IDEOLOGY PRIVATE PROPERTY SELF- INTEREST COMPETITION FREEDOM OF ENTERPRISE & CHOICE SELF- INTEREST COMPETITION
CAPITALIST IDEOLOGY LARGE NUMBERS ENTRY & EXIT PRIVATE PROPERTY SELF- FREEDOM OF ENTERPRISE & CHOICE LARGE NUMBERS SELF- INTEREST ENTRY & EXIT COMPETITION
CAPITALIST IDEOLOGY PRIVATE PROPERTY SELF- INTEREST MARKETS & PRICES FREEDOM OF ENTERPRISE & CHOICE SELF- INTEREST COMPETITION MARKETS & PRICES ACTIVE, BUT LIMITED, GOVERNMENT
GLOBAL PERSPECTIVE Rankings among 156 nations, 2003 Index of Economic Freedom, Selected Nations Rankings among 156 nations, 2003 1 Hong Kong 3 New Zealand 6 United States FREE 16 Chile 18 Canada 40 France MOSTLY FREE 72 Malaysia 99 Pakistan 127 China MOSTLY UNFREE 146 Iran 155 Cuba 156 North Korea REPRESSED Source: Heritage Foundation & The Wall Street Journal
Reliance on Technology CAPITALIST IDEOLOGY Other Characteristics Reliance on Technology and Capital Goods Roundabout Production
Reliance on Technology Specialization and Efficiency CAPITALIST IDEOLOGY Other Characteristics Reliance on Technology and Capital Goods Specialization and Efficiency
Reliance on Technology Specialization and Efficiency CAPITALIST IDEOLOGY Other Characteristics Reliance on Technology and Capital Goods Specialization and Efficiency Division of Labor
Reliance on Technology Specialization and Efficiency CAPITALIST IDEOLOGY Other Characteristics Reliance on Technology and Capital Goods Specialization and Efficiency Differences in Ability Fosters Learning by Doing Saves Time
Reliance on Technology Specialization and Efficiency CAPITALIST IDEOLOGY Other Characteristics Reliance on Technology and Capital Goods Specialization and Efficiency Geographic Specialization
Reliance on Technology CAPITALIST IDEOLOGY Other Characteristics Reliance on Technology and Capital Goods Specialization and Efficiency Use of Money As a Medium of Exchange
Reliance on Technology Specialization and Efficiency CAPITALIST IDEOLOGY Other Characteristics Reliance on Technology and Capital Goods Specialization and Efficiency Use of Money Barter System Difficulties
The Four Fundamental Questions... THE MARKET SYSTEM AT WORK The Four Fundamental Questions... What will be produced?
The Four Fundamental Questions... THE MARKET SYSTEM AT WORK The Four Fundamental Questions... How will the goods be produced? What will be produced?
The Four Fundamental Questions... THE MARKET SYSTEM AT WORK The Four Fundamental Questions... What will be produced? How will the goods be produced? Who will get the goods and services?
The Four Fundamental Questions... THE MARKET SYSTEM AT WORK The Four Fundamental Questions... What will be produced? How will the goods be produced? Who will get the goods and services? How will the system accommodate change?
Economic or Pure Profit Normal Profit Expanding Industry WHAT WILL BE PRODUCED? Economic Profit = Total Revenue – Total Cost Economic or Pure Profit Normal Profit Expanding Industry Declining Industry Consumer Sovereignty
Economic or Pure Profit Normal Profit Expanding Industry WHAT WILL BE PRODUCED? Economic Profit = Total Revenue – Total Cost Economic or Pure Profit Normal Profit Expanding Industry Declining Industry Consumer Sovereignty Dollar Votes Market Restraints on Freedom Derived Demand
Least Cost Production Available Technology Economic Efficiency HOW WILL THE GOODS AND SERVICES BE PRODUCED? Least Cost Production Resource Prices Resource Productivity Transportation Costs Available Technology Economic Efficiency
Rationing Function of Equilibrium Prices Income Constraints WHO WILL GET THE GOODS AND SERVICES? Market System Rationing Function of Equilibrium Prices Income Constraints Resource Prices
HOW WILL THE SYSTEM ACCOMMODATE CHANGE? Dynamic Market Systems Guiding Function of Prices Role in Promoting Progress Technological Advance Creative Destruction Capital Accumulation
Efficiency Incentives Freedom COMPETITION AND THE INVISIBLE HAND The Case for the Market System Efficiency Incentives Freedom
KEY TERMS private property freedom of enterprise freedom of choice self-interest competition roundabout production specialization division of labor medium of exchange barter money Four Fundamental Questions economic costs normal profit economic profit expanding industry declining industry consumer sovereignty dollar votes derived demand guiding function of prices creative destruction “invisible hand” Copyright McGraw-Hill/Irwin, 2005 BACK END
Coming up next... THE U.S. ECONOMY Chapter 5 Private and Public Sectors