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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 government’s 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) government’s 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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This note was uploaded on 04/09/2008 for the course ECO 102 taught by Professor Lindenfelser during the Spring '08 term at Community College of Allegheny County.
- Spring '08