Economic Systems & Decision Making 2 C H A P T E R.

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Presentation transcript:

Economic Systems & Decision Making 2 C H A P T E R

ECONOMIC SYSTEMS THE MARKET SYSTEM Pure Capitalism Laissez-faire “Let it be” THE COMMAND SYSTEM Socialism Communism

ECONOMIC SYSTEMS TRADITIONAL SYSTEM ◦ Based on habits and/or customs ◦ Tribal, indigenous MIXED ECONOMY ◦ Has elements of two or more systems.

TRADEOFFSTRADEOFFS Economic Freedom Economic Efficiency Economic Equity Economic Security Full Employment Price-Level Stability Economic Growth ECONOMIC GOALS COMPLIMENTS

The Market System

CAPITALIST IDEOLOGY FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY SELF- INTEREST COMPETITION

MARKETS & PRICES FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY ACTIVE, BUT LIMITED, GOVERNMENT SELF- INTEREST COMPETITION CAPITALIST IDEOLOGY

GLOBAL PERSPECTIVE Index of Economic Freedom, Selected Nations 1 Hong Kong 3 Ireland 5 United States 20 Belgium 31 Spain 48 France 101 Brazil 126 China 134 Russia 148 Venezuela 156 Cuba 157 North Korea FREE MOSTLY FREE MOSTLY UNFREE REPRESSED Rankings among 157 nations, 2008

The Three Fundamental Questions... What will be produced? THE MARKET SYSTEM AT WORK

The Three Fundamental Questions... How will the goods be produced? What will be produced? THE MARKET SYSTEM AT WORK

The Three Fundamental Questions... How will the goods be produced? What will be produced? Who will get the goods and services? THE MARKET SYSTEM AT WORK

Those goods and services that make a profit. WHAT WILL BE PRODUCED? Profit = Total Revenue – Total Cost

Least Cost Production  Maximizing output while minimizing cost. HOW WILL THE GOODS AND SERVICES BE PRODUCED?

The market determines the price. Those willing to pay that price receive the goods and services. Income is the key. WHO WILL GET THE GOODS AND SERVICES?

THE CASE FOR THE MARKET SYSTEM Efficiency Incentives Freedom