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Chapter 2 - The Market System and the Circular Flow
- 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 Demise of the Command Systems
- The Coordination Problem
- The Incentive Problem
- 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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, Aug 29 2007, 7:59 PM EDT
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