ARE 1150 1st Edition Lecture 4Outline of Last Lecture I. Individual Economizing Problem (cont.)a. Define Budget line b. DVDs and books exampleII. Society’s Economizing Problema. Economic resources III. Production Possibilities Model IV. Chapter 2: The Market system and circular flow a. Objectivesb. Market systemOutline of Current Lecture I. Economic Systemsa. Differ based onb. Market Systemc. Command System II. Key Characteristics of the market systemIII. Read from TextbookIV. The curious case from Cubaa. NPR radio stories Current LectureI. Economic systemsa. Differ based oni. Who owns the factor of productionii. What method is used to motivate, coordinate, and direct economic activityb. Market system (capitalism)i. Private ownership of factors of productionii. Markets and prices drive economic activityc. Command system (very similar to communism or socialism)i. Government ownership of factors ii. Central planning board is in control d. Focus on economic as opposed to political aspects of economic systems These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.II. Key characteristics of the market system – many of these essential features are interdependent i. Private property1. Facilitate exchange of property2. Provide incentives for investment in and maintenance of property3. Encourage innovation ii. Freedom of enterprise and choice1. When the various economic actors exercise their freedomsthey are guided by self-interesta. What consumers wantb. Global perspective 2.1 index of economic freedomc. Essential for country to make economic progressiii. Self-interestiv. Competition1. Ensures best possible use of society’s resources2. Diffusion of economic power3. Freedom to enter or leave markets provides flexibility needed to remain efficient over time 4. Example: water supply companies, cable companies  limited competition 5. Gov’t is about improving competition v. Markets and prices 1. Decisions made by economic agents are coordinated by their interaction in markets2. Such interaction leads to equilibrium prices of goods and services vi. Technology and capital goods1. Incentives for technological advances and the development of capital goodsa. Improvement in proud activity ay and output of an economyvii. Human specialization (division of labor) and geographic specialization 1. Makes use of differences in ability2. Fosters learning by doing3. Better productivity (and output)viii. Use of money1. Specialization requires exchangea. Barter requires a coincidence of wantsb. Money facilitates exchange 2. Can exchange goods and services These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.3. Bring in money to make exchange so much more efficient because don’t have to around for equal tradeix. Active, but limited, government 1. Facilitator rather than the doer2. Role in increasing the effectiveness of a market systema. Correcting market failuresi. Monitor policyii. Provide “public goods” – national parks, national defense1. If these are not provided then the private sector wont be able to produce themx. Geographic socialization1. Variations in factors such as climate and endowment of natural resources2. Greater productivity and high total output b. Real world economies deviate, often substantially, from these ideal characteristics III. Read from the textbooka. The invisible handb. Failure of the command system i. Followed until recently by the Soviet Union and China and some countries in eastern Europe 1. Coordinate problem2. Incentive problemii. Remnants of the system are found in some countries (ex. North Korea)c. Consider thisi. The two KoreasIV. The curious case of Cubaa. A glimpse of the old ways and transition to the market systemi. Cuba – newest transition economy ii. Cuba’s New mantra: viva private business – radio story These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a