Market Structurestwo discrete states of social organization:1.In centrally plannedeconomies, government agents are responsible for making decisions about production, distribution, and pricing of goods.2.In markets,( "capitalism") these decisions are decentralized, placed in the hands of millions of individuals, who invest their time, money and ideas into the manufacture or sale of some product, with the hope of making a profit and enhancing their own lives.The Knowledge ProblemThe great problem of attempting to centrally plan an economy is that of information.The greatest benefit of a market-based economy is that it is the only place where all of this widespread information about diverse and dynamic human wants is exposed. This information guides producers to alter their production and investment choices to ensure that human needs and wants are addressed.Adam Smith referred to as "the invisible hand," the assembly of unseen consumer forces continually changing the production landscape.Markets and Mixed Economies"free markets": We have a great deal of government involvement in our economic lives, even in the United States, which is frequently held up as the standard-bearer for free-market economics in today's world. An economy without any form of government intervention is referred to as "laissez-faire." ( "let it happen,")The peak of laissez-faire probably occurred in the second half of the 19th century, and gave rise to industrial titans such as Andrew Carnegie and John Rockefeller, who became known as "robber-barons" because of the allegedly predatory way in which they ran their businesses.when speaking of market economies, it is best to refer to them as "competitive markets," and not as free markets, because they certainly are not free in the sense that market participants are not unrestricted agents.A Model for a Market EconomyDemand Side: consumers, demanders, or buyers ( "Utility Maximizers,") Supply Side: suppliers, producers, or sellers ( profit-maximizers)Model: model is a way of representing something else, a kind of "stand-in."Marginal Utilitymarginal analysis:we look at how something changes if we change some other thing a little bit.The more we have consumed of something, the less value the next unit of consumption holds for us.
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