1 29 2024 Economic systems Set of institutionalized arrangements Coordinating mechanisms Differences in systems exist by Degree of decentralized use of markets and prices in decision making Degree of centralized government control Laissez Faire capitalism Most free markets with little to no government influence Live to be free But the government s power is needed to protect private property from theft And provide a legal environment for contract enforcement Protectors and Enforcers Efficiency does not equal equitable Taxes give the government their money to run the nation When the government controls everything the land the labor the capital and the entrepreneur Major decisions are made by a central planning board Soviet Union Cuba North Korea Myanmar Extremely equitable but not efficient The Command System The Market System The market system is a mix of decentralized decision making and some government control These systems are found in most of the world s economies The private ownership of resources and the factors of productions Has Self interested behavior due to private ownership and incentivization of certain decisions Characteristics of the market system Private property Freedom of enterprise Make whatever Business you want The ability for companies to make their own choices and decisions their Freedom of choice company makes Self interest Competition The invisible hand you Promotes innovation Lowers price of goods and services Market and prices Technology and capital goods Advanced technology and capital goods are encouraged Specialization Specialize in a certain area to have a better understanding of specific Money makes trade easier It is a medium of exchange Without Money people would Division of Labor Geographic specialization items Use Of Money have to Barter The United states is an active but limited Government The Five Fundamental Questions What goods and services will be produces How will the goods and services be produced Who will get the goods and services How will the system accommodate change How will the system promote progress What will be Produced Goods and services that create a profit Consumer sovereignty Dollar Votes Allow consumers to indicate which goods and services should be produced Determine which products and industries survive or fail Minimize the cost per unit by using the most efficient techniques Technology Prices of the necessary resources How will the systems change the systems will change through changes in consumer tastes their preferences and wants technology advancements in tech will lead to new wants and increased productivity and resource price the price of the input components may reach the threshold to which the consumer will no longer desire the good at the set market price thus causing a decrease in the price of the good or service The Invisible Hand competition causing individuals and firms to unintentionally but effectively promote the interests of society even when individual firms attempt to pursue their own interests Virtues of the market system include Efficiency Incentives and Freedoms What causes Command Systems to fail The command systems fail to produce equitable amounts of goods and services The coordination problem Must correctly set output targets for all of the nation s goods and services The incentive problem No adjustments for surplus or shortage Because there no need to make something new because you wont earn anything more than you have already been given by the government
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