Unformatted text preview: goods to be produced? Market Economies and the Price System
Two Alternative Approaches to Answering the Three Fundamental Questions:
1) Market Economy: an economy where most decisions of how, what and for whom to produce are made by individual firms, consumers and governments interacting in markets. In this economy, production and prices are determined in markets. Market Economies and the Price System
1) Command Economy: an economy where most decisions of how, what and for whom to produce are made by a select group of individuals and firms that control the government. In this economy, production and prices are determined by the government. Key Elements of a Market Economy
Freely Determined Price: a price that is determined by the interaction of individuals and firms in the market. Property Rights: rights over the use, sale and proceeds from a good or a resource. Incentive: a device that motivates people to take action, usually so as to increase economic efficiency. A Role for the Government
Market failure: any situation in which the marke...
View Full Document