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Notes - Chapter 3 - Chapter III I Questions For Society 1...

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Chapter III I. Questions For Society 1. What will be produced? 2. How will it be produced? 3. Who will do the production? 4. How will goods and services be distributed among the people? II. Two Options To Answer Questions 1. Centrally Planned Economy (Command Economy, Communism) 1. A central body answers these questions 2. May work for small groups 3. Breaks down in large systems 4. Examples: 1. Bureaucratically controlled markets (NYC Housing) 2. Small Societies (Agrarian) 3. Communist States: 1. Soviet Union 2. Cuba 3. North Korea 4. China 2. Capitalist / Free Market Economies 1. People decide individually 1. What careers to pursue 2. What products to produce 3. What products to buy 3. Most Modern economies have Mixed Systems 1. Combination of 1. Free market forces 2. Regulation 3. Central Decision making 4. Almost all economists believe that free-market systems produce the outcomes that are most beneficial for society.
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III. Buyers, Sellers, And Markets 1. Market – All the buyers and sellers of a particular good or service 1. Market for Pizza in Chicago 1. All of the groups of people who either do sell, or are willing to sell pizza if the circumstances are right 2. All of the people who buy pizza, or would buy pizza 2. Why are some goods more expensive than others? 1. Adam Smith – Wealth of Nations (1776) 2. Karl Marx 1. Thought “Cost of Production” determines price 3. Stanley Jevons (Early 19 th Century) 1. Thought “Value of goods and services to people” determines price 4. Diamond – Water Paradox - 1. Why are diamonds so much more expensive than water even though we need water to survive, but do not need diamonds? 5. Alfred Marshall (Late 19 th Century) 1. First economist to identify that cost of production and value to consumer interact to determine price. 2. Supply and Demand 3. The Demand Curve 1. Shows how much of a good or service people want to buy at different prices.
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