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Chapter 3 Economic Institutions

Chapter 3 Economic Institutions - Chapter 3 Economic...

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Chapter 3: Economic Institutions The US Economy in Historical Perspective Saying that markets are the reason for economic strength is misleading: 1. Misses the point that other countries have markets too but with lower standards of living. 2. Conveys a sense that markets exist independently of social and cultural institutions. Institutions are the formal and informal rules that constrain human economic behavior. Market economy is an economic system based on private property and the market in which individuals decide on the three main economic issues . In a market economy individuals are encouraged to follow their own self interests. Fluctuations in prices play a role in coordinating individual’s wants in a market economy. The primary debate among economists is how markets are structured . Socialism is an economic system based on individual’s goodwill towards other, not self-interests, in which society decides on the three main economic issues . In theory, it organizes society in the same way as families are organized Sometimes called a command economy Capitalism is defined as an economic system based on the market in which the ownership of the means of production resides with a small group of individuals. We emphasize more on differences in institutions than differences in system. Feudalism is an economic system in which traditions rule. Mercantilism is an economic system in which government determines, what, how, and for whom decisions by doling out rights to undertake these economic activities.
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