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Unformatted text preview: Chapter 2 The Market System and Circular Flow Economic Systems Economic systems: a particular set of institutional arrangements and a coordinating mechanism o Determines what goods are produced, how they are produced, who gets them, how to accommodate change, and how to promote the technological progress o Differ as to (1) who owns the factors of production and (2) the method used to motivate, coordinate, and direct economic activity Command system: a.k.a. som or communism; government owns most property and economic decisions come through a central economic plan The division of output between capital and consumer goods is centrally decided, and capital goods are allocated among industries among the governments long-term priorities Market system: a.k.a. capitalism; private ownership of resources and the use of markets and prices to coordinate and direct economic activity In pure capitalism (laissez faire capitalism) governments role would be limited to protecting private property and establishing an environment appropriate to market system operations Believed government will interfere with efficient working of market system...
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- Spring '08