9.14.10 - 9.14.2010 The Market System and the Circular Flow...

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9.14.2010 The Market System and the Circular Flow Economic Systems Economic system – particular set of institutional arrangements and a coordinating mechanism Purpose => decide how to economize Differs on: Who owns factors of production What method directs economic activity Command system – socialism or communism Government owns most property resources and economic decision making occurs through a central economic plan Central planning appointed by government Provide production goals Specify resources to be allocated Market system – opposite of command system, capitalism Private ownership of resources and the use of markets and prices to coordinate and direct economic activity Economic activity coordinated through markets Laissez-faire capitalism – government’s role would be limited to protecting private property and establishing an environment appropriate to the operation of the market system Characteristics of the Market System Private property - extensive private ownership of capital Encourages innovation, investment, and economic growth Freedom of enterprise – ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets Freedom of choice – enables owners to employ or dispose of their property
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9.14.10 - 9.14.2010 The Market System and the Circular Flow...

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