Chapter 2 - The Market System and the Circular FlowThis is a featured page


    • The Command System (aka Communism/Socialism)
    • The Market System

  • Characteristics of the Market System
    • Private Property
    • Freedom of Enterprise and Choice
    • Self-Interest
    • Competition
    • Markets and Prices
    • Technology and Capital Goods
    • Specialization
      • Division of labor
      • Geographical specialization
    • Use of Money
    • Active, but Limited Government

  • Five Fundamental Questions
    • What will be produced?
    • How will goods and services be produced?
    • Who will get the output
    • How will the system accommodate change?
    • How will the system promote progress?
      • Technological advance
      • Capital accumulation

  • The Invisible Hand
    • Every exchange is mutually beneficial
    • Firms and resource suppliers fulfill self-interest by providing a certain good/service because it yields better profits, while led by the invisible hand, they also promote the interest of society


  • The Circular Flow Model
    • Resource Market
    • Product Market
    • Households
      • provide resources: land, capital, labor, entrepreneurship
    • Firms
      • pay rent, interest, wages, and profits (respectively) for the resources





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