Chapter 2 - Chapter 2 Economic System- A set of...

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Economic System - A set of institutional arrangements and a coordinating mechanism to respond to the economizing problem. Key questions any Economic System must answer: 1. What to produce? 2. How to produce? 3. How to distribute? 4. How will the system accommodate change? 5. How will the system promote technological progress? Command System - “socialism”/ “Communism” 1. Government owns most property resource 2. Economic decisions are made through a central economic plan. - Reforms in Russia and other Eastern European nations have transformed them into market-oriented economics. - China’s reforms have greatly reduced reliance on central planning, but government ownership of property resources is still extensive. - North Korea and Cuba are the last prominent remaining centrally planned economies. Market System Institutional arrangement- Markets Coordinating mechanism- Prices Pure or “laissez-faire” capitalism : Government role is limited to protecting private property and establishing an environment appropriate to the free operation of markets. -All economic systems are “mixed”, there is no pure system. Characteristics of a market system: 1. Private Property- property resources are owned by individuals and firms, no the government a. Private property enables businesses to obtain, use, and dispose of property resources as they see fit b. Property owners may designate who will receive their property when they die. c. Private property encourages investment, innovation, and economic growth. d. Includes “intellectual property” though patents, copyrights, and trademarks. (Encourages people to create books, art, software, pharmaceuticals) Property rights ensure the creator receives the rewards from the creation. e.
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Chapter 2 - Chapter 2 Economic System- A set of...

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