Lecture 11

Lecture 11 - Economic system is a nation's system for...

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capitalism or market economy (U.S., European nations, others moving this way) free enterprise, or laissez faire . Adam Smith: "invisible hand" of competition pro: efficiency, con: inequality (see p 46 homeless) communism or command/planned economy (China, Cuba, North Korea) Karl Marx doctrine: "from each according to his ability to each according to his need" pro: equality (everyone works), con: inefficient socialism more a political system, but important government owns and operates selected industries (European democracies) trend toward mixed economies (both market and command economic elements: China and Lexington Park, MD) Foundations (rights) of capitalism: private property earn and keep profits freedom of competition (enterprise) freedom of choice Market system: the market determines product prices and output through forces of supply and demand: a. Supply: qty of goods/services businesses are willing to sell at different prices at a specific time (seller, producer, or business) b. Demand: qty of goods/services consumers are willing to buy at different prices at a specific time (buyer, or consumer) Know laws (curves) of supply (fig 2.2) and demand (2.3) Market or Equilibrium Point (fig 2.4): the price and qty combination where supply equals demand ("discovered" price, no price tag ) - like an auction: a. market forces eliminate surplus or shortage (e.g. ticket scalping). b. supply, demand, and equilibrium only exist in a market (capitalist) system c. contrast with communist system (some gov't agency or ministry decides these things) Competition: the rivalry among businesses to convince consumers to buy their goods/services - four degrees of competition (ECN market models): 1. perfect competition: numerous sellers, standard product, tobacco farmer 2. monopolistic competition: many sellers, product differentiation, hairdresser 3. oligopoly: few sellers, interdependence, orthodontist 4. monopoly: one seller, one product, SMECO ( Microsoft is alleged to be one) Note: patent laws create "short-term" monopolies Limitations of free-market system: inequality (have's/have nots) National economic goals (terms): stability (capitalism produces business cycles) low inflation (disinflation, deflation) minimize recession/depression full employment unemployment rate (national vs state) types of unemployment: frictional, structural, seasonal, cyclical, seasonal economic growth (better standard of living) Measuring economic performance: gross domestic product (GDP) consumer price index (CPI) productivity (goods vs services)
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Lecture 11 - Economic system is a nation's system for...

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