|Economic System||Set of institutional arrangements and a coordinating mechanism, Determines what goods are produced how they are produced, who gets them, how to accommodate change, and how to promote technological progress|
|Command System||Socialism/ Communism, Government owns most property resources and economic decision making through a central economic plan (North Korea, Cuba)|
|Market System||Capitalism, Private ownership of resources and use of markets and prices to coordinate and direct economic activity (Hong Kong)|
|Characteristics of a Market System||Private Property, Freedom of enterprise and choice, Self-Interest, Competition, Markets and Prices, Technology and Capital Goods, Specialization, Use of Money, Active but Limited Government|
|Private Property||Incentive to make things more valuable if we own it|
|Self-Interest||"What is best for me"|
|Competition||Always has producers striving to improve and recreate products; Lower Prices|
|Markets and Prices||Prices are a signal to businesses of the success of their product|
|Specialization||allows things to be done faster, better, and cheaper|
|Division of Labor||If someone is good and experienced at something and loves to do it, they will do it better and more efficiently than anyone else|
|Geographic Specialization|| Ex: Certain crops can only be grown in certain regions |
Ex2: Cruise ship manufacturers would manufacturer ships closer to water
|Use of Money|| Money is used instead of bartering |
Problem with Bartering: "Coincidence of Wants"- I have to have what you want, and you have to have what I want
|Active, Limited Government||Regulations protect consumers and producers, Limited involvement though as to not control EVERYTHING|
|Market System Questions|| What will be produced?|
How will goods be produced?
Who gets the output?
How is change accommodated?
How is progress promoted?
|What will be produced?||Consumer sovereignty: when consumers buy or don't buy, we tell producers what we want; We vote with our dollars|
|How will goods be produced?||Technology, Resources cost: lowest cost wanted|
|Who gets the output?||Willingness to pay and ability to pay|
|How is change accommodated?||Self-interest|
|How is progress promoted?||Technological advance (8 Track - Ipod); Capital Accumulation|
|Wealth of the Nations by Adam Smith||Market systems grow economies; Unity of private and soul interest; Invisible hand enables economy to let complexity get in the way|
|Virtues of the Market System|| Efficiency|
|Disadvantages of the Command System|| Motivation is lacking: No extra pay or bonus for extra work, no incentive to work harder|
Coordinating Problem: no back up plan, if you wait on a supplier for products to produce your own product and he can't follow through, there is no other supplier to turn to