The Market System and the Circular Flow Chapter 2.

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Presentation transcript:

The Market System and the Circular Flow Chapter 2

Economic Systems Set of institutional arrangements in response to economizing problem. Differences in systems exist by: Who owns the factors of production? What method is used to motivate, coordinate, and direct economic activity? LO1 2-2

1. The Command System Known as socialism or communism Government ownership of means to production. Decisions made by a central planning board. Include production goals, resource usage, consumer vs. capital goods production, etc. North Korea and Cuba. LO1 2-3

2. The Market System Known as capitalism Private ownership of resources Use of markets and prices to coordinate economic activity. Laissez-Faire vs. Government involvement. Decisions based on markets USA, Australia, Switzerland, U.K. LO1 2-4

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