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Unformatted text preview: What are economic systems?  An economic system is the set of mechanisms and institutions that resolves the what, how, and for whom questions.  Some standards used to distinguish among economic systems are:  Who owns the resources?  What decision-making process is used to allocate resources and products?  What types of incentives guide economic decision makers?  Pure Market Economy All resources are privately owned  Coordination of economic activity is based on the prices generated in free, competitive markets  Any income derived from selling resources goes exclusively to each resource owner Invisible Hand of Markets  According to economist Adam Smith (1723–1790), market forces coordinate production as if by an “invisible hand.” Problems with Pure Market Economies  Difficulty enforcing property rights  Some people have few resources to sell  Some firms try to monopolize markets  No public goods  Externalities Pure Centrally Planned Economy  All resources government-owned...
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- Spring '11
- Economics, Pigovian tax