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Unformatted text preview: What are economic systems? &#2; An economic system is the set of mechanisms and institutions that resolves the what, how, and for whom questions. &#2; Some standards used to distinguish among economic systems are: &#2; Who owns the resources? &#2; What decision-making process is used to allocate resources and products? &#2; What types of incentives guide economic decision makers? &#2; Pure Market Economy All resources are privately owned &#2; Coordination of economic activity is based on the prices generated in free, competitive markets &#2; Any income derived from selling resources goes exclusively to each resource owner Invisible Hand of Markets &#2; According to economist Adam Smith (17231790), market forces coordinate production as if by an invisible hand. Problems with Pure Market Economies &#2; Difficulty enforcing property rights &#2; Some people have few resources to sell &#2; Some firms try to monopolize markets &#2; No public goods &#2; Externalities Pure Centrally Planned Economy &#2; All resources government-owned...
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- Spring '11