23MeierPP02_18e - Chapter 2 Chapter The Market System...

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Unformatted text preview: Chapter 2 Chapter The Market System Features of Market Systems Features • • • • • • • Limited government Private property Economic freedom Economic self-interest Consumer sovereignty Price mechanism Competition Limited Government Limited Decisions made primarily Decisions within private sector within Private Property Private Households and business Households firms own property, as opposed to government, for the most part the Economic Freedom Economic Free enterprise Occupational choice Economic Self-Interest Higher returns for suppliers: Higher Firms Resource suppliers Profit motive Consumer Sovereignty Consumer The consumer determines The production through demand and purchases and Price Mechanism Price Price signals buyers and Price sellers what to do sellers Buyers – lower prices Buyers lower Sellers – higher prices Sellers higher Competition Competition LARGE NUMBERS ENTRY & EXIT Other Characteristics Extensive Use of Capital Goods Specialization and Efficiency Use of Money Extensive use of capital goods Technological advance Technological advance Roundabout Production Specialization and Efficiency DIVISION OF LABOR DIVISION OF LABOR Use of money Use Medium of exchange Enhances the exchange process More efficient than barter Use of money Use Difficulties in a barter system Coincidence of wants RESULTS… RESULTS… Efficiency More output Lower prices Five Five Fundamental Questions Fundamental What is to be produced? What How much to produce? How is the output to be produced? Who is to receive the output? Can the system adapt to change? How does a market system solve these questions? questions? What Is To Be Produced? Consumer sovereignty Consumer Produce what is in demand How Much To Produce? Maximize profits Maximize Minimize losses How To Produce? Most efficient method Most Least cost, most profit Who Receives? Dollar votes Dollar Higher income, more goods Higher received received Adapt To Change? Price mechanism Price Guiding function of price ...
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