Chapter 2 - The Market System and the Circular Flow

Chapter 2 - The Market System and the Circular Flow -...

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Economics 212 Principles of Microeconomics
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Chapter 2 The Market System and the Circular Flow
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I. Economic Systems A. Economic systems differ in two important ways: 1. Who owns the factors of production 2. The method used to coordinate economic activity
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A. The market system: 1. There is private ownership of resources 2. Markets and prices coordinate direct economic activity 3. Each participant acts in his or her own self- interest 4. In pure capitalism, the govt plays a limited role 5. In the U.S. version of capitalism, govt plays a substantial role.
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A. Command economy, socialism or communism 1. There is a public (state) ownership of resources. 2. Economic activity is coordinated by central planning.
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II. Basic Characteristics of the Market System A. Private property 1. People can obtain, control, use, and dispose of the property resources they own. 2. Encourages investment, innovation, and growth – no confiscation from the government without proper compensation.
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United States Constitution – 5 th Amendment “No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation .”
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3. Facilitates exchange between buyer and seller property also includes intellectual property (i.e. patents, copyrights, trademarks)
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A. Freedom of Enterprise and Choice
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Chapter 2 - The Market System and the Circular Flow -...

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