logo image

The Market System and the Circular Flow Notes

The three core choices that confront every nation: * What to produce with our limited resources * How to produce goods and services we select * For whom good and services are produced (who should get them) Economic Systems: * Set of institutional arrangements * Differ based on: * A) Who owns the factors of production? * B) What method directs economic activity?

The three economic systems: Planned economy: * Called a command economy * Production, distribution, and prices, are all made by the government * Market forces have very little role in such an economy This type of economy lacks the kind of flexibility that is present in a market economy, and because of this, the planned economy reacts slower to changes in consumer needs Mixed economy: * Combines elements of both the planned and the market economies in one cohesive system * Certain features from both market and planned economic systems are taken to form this type of economy * This system prevails in many countries where neither the government nor the business entities control the economic activities of that country – both sectors play an important role in the economic decision-making of the country * Includes both capitalist

Need essay sample on "The Market System and the Circular Flow Notes"? We will write a custom essay sample specifically for you for only $13.90/page

and socialist economic policies Market economy: * In a market economy, national and state governments play a minor role * Consumers and their buying decisions drive the economy * In this type of economic system, the assumption of the market plays a major role in deciding the right path for a country’s economic development * The absence of central planning is one of the major features of this economic system * Market decisions are mainly dominated by supply and demand * The role of the government in a market economy is to simply make sure that the market is stable enough to carry out its economic activities Market System Characteristics: * Private property Freedom of enterprise and choice * Self-interest * Competition * Markets and prices Chapter 2: the Market System and the Circular Flow Notes By Cabinetmaker * The market value of output (GAP) is a basic measure of an economy’s size The US Economy – A Global View: * US output and population growth since 1900 * Over time, the growth of output in the US has greatly exceeded population growth. As a consequence, GAP per capita has grown tremendously.

GAP per capita was five times higher in 2000 than in 1900 * The US gets richer almost every year How America Produces: * Resources * Resource inputs used to produce goods and services Human Capital * The US has invested heavily in human capital. Such work force possess knowledge and skills * Capital Stock * Production processes use a highly ratio of capital to labor inputs. That makes the US business so efficient * High Productivity * The output per unit of input in US production systems is high * Factor Mobility * Every year some industries expand and others contract or even disappear depending on resources reallocation * Outsourcing and Trade * By utilizing foreign resources and pursue the comparative advantage, the net national gains increases * Resources – Human Capital – High Productivity – Factor

Mobility – Capital Stock – Outsourcing and Trade Role of Government: * The government plays an important role in establishing a framework in which private businesses can operate * Providing a legal framework and enforce the rules of the game by establishing ownership rights, contract rights, and lays the foundation for market transaction * Protecting the environment * Protecting the consumers * Protecting labor * Striking a Balance * Market alone might not always select the best possible way of producing goods and services (Market Failure) * Government interventions are designed to change he way resources are used (Government Failure) * Striking is the right balance between market reliance and government regulation Circular Flow: Study Questions: Which of the following is a feature of a command system? -Central planning Which of the following is a distinguishing feature of a market system? Wide-spread private ownership of capital Examples of command economies are: -Cuba and North Korea -Is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem The term laissez-fairer suggests that: -The government should not interfere with the operation of the economy Copyrights and trademarks are examples of: -Property rights The regulatory mechanism of the market system is: -Competition The presence of market failures implies that: -There is an active role for government, even in a market system From society point of view the economic function of profits and losses is to: – reallocate resources from less desired to more desired uses Economic profits and losses: -Are essential to the reallocation of resources from less desired goods to more desired goods The invisible hand refers to the: -Notion that, under competition, decisions motivated by self-interest promote the social interest

Read full document

Can’t wait to take that assignment burden offyour shoulders?

Let us know what it is and we will show you how it can be done!
×
Sorry, but copying text is forbidden on this website. If you need this or any other sample, please register
Signup & Access Essays

Already on Businessays? Login here

No, thanks. I prefer suffering on my own
Sorry, but copying text is forbidden on this website. If you need this or any other sample register now and get a free access to all papers, carefully proofread and edited by our experts.
Sign in / Sign up
No, thanks. I prefer suffering on my own
Not quite the topic you need?
We would be happy to write it
Join and witness the magic
Service Open At All Times
|
Complete Buyer Protection
|
Plagiarism-Free Writing

Emily from Businessays

Hi there, would you like to get such a paper? How about receiving a customized one? Check it out https://goo.gl/chNgQy