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McConnell_Brue_Chapter02 - Chapter 2 The Market System and...

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Chapter 2: The Market System and The Circular Flow 1 Slide 1 Chapter 2 1 Economics 17 th Edition Campbell McConnell and Stan Brue Chapter #2 The Market System and The Circular Flow In this chapter we examine distinguishing features of a capitalistic economic system. This system is more commonly referred to as a market system. In addition, we will be making some comparisons of the market system with another system that was once deeply engrained in the former Soviet Union. This alternative economic system is referred to as a command economy and still exists in a few places, such as Cuba, even today. The final major general concept we will examine in this chapter the circular flow model. As we move through the chapter content, please keep in mind just how amazingly efficient the market system tends to be. Although a market system, or capitalistic economy, is not naturally perfect, it is impressively efficient and most of the efficiency occurs naturally. That leads me to another point I would like for you to ponder as we progress through this presentation. The pure capitalistic market system has no governmental checks and balances in place and functions much like nature. The system rewards the most efficient resource users and the process becomes economic survival of the fittest. It is the concept of economic survival of the fittest that brings much of the natural efficiency to the capitalistic economic system. Slide 2 Chapter 2 2 Chapter Learning Objectives In this chapter you will learn: 1. The difference between a command system and a market system. 2. The main characteristics of the market system. 3. How the market system decides what to produce, how to produce it, and who obtains it. 4. How the market system adjusts to change and promotes progress. 5. The mechanics of the circular flow model.
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Chapter 2: The Market System and The Circular Flow 2 Slide 3 Chapter 2 3 Economic Systems Each economy must develop a system, or particular set of institutional arrangements and a coordinating mechanism in response to the economizing problem. This economics system must address what goods are produced, how they will be produced, who gets them once they are produced, how to accommodate change, and how to promote technological progress. Learning Objective 2-1 Each social system must address the issue of deciding how to use scarce resources to produce goods and services, determine how to distribute these goods and services among the members of their society, and discern how to maintain enough flexibility in the system to accommodate change and encourage increasing efficiency over time. Take a moment and imagine how challenging the task of making these choices in a large nation would be for a group of individuals. The numerous possible resource combinations available to produce goods and services are substantially beyond our capacity to comprehend. One can grasp a much better understanding of the complexity and sheer magnitude of the mathematical challenge a social system faces
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