 What do you think makes a market economy (capitalism) different from the economic system of Cuba or North Korea?

 8 volunteers will be paid to pick up paper clips in two rounds; the paper clips represent whales in the ocean  You may pick up paper clips from any box – don’t worry about the lines of separation  Session 1: 30 seconds, ¼ extra credit point for each paper clip  Session 2: 30 seconds, ½ extra credit point for each paper clip

 You may only pick up paper clips that fall into your assigned “cell”  Session 1: 30 seconds, ¼ extra credit point for each paper clip  Session 2: 30 seconds, ½ extra credit point for each paper clip

Today’s LEQ: When should the government get involved in a market economy?

 Compare resource use when property rights are clearly defined with resource use when rights are not clearly defined

1. Why did people have incentives in Round 1 to pick up the clips during the first 30 seconds even though the payoff was higher if they waited? 2. Why did people have incentives in Round 2 to pick up the clips during the second 30 seconds? 3. What did you do in Round 2 about the clips that fell on the boundaries? 4. Imagine the paper clips were whales, the floor was the ocean, and the student volunteers were whale hunters. How can this activity relate to the problems of harvesting whales? 5. Think about the amount of beef and chicken consumed every day. Why aren’t cattle and chickens in danger of extinction, along with whales? 6. Think of other resources for which property rights are not clearly defined. What problems occur as a result?

 Private property  Free enterprise  Self-interest  Competition  A price system  Limited government

 Individual ownership and control of resources and products  Intellectual and physical

 IF property rights are well defined and enforced and the market is competitive, resources are usually used in the most valued manner  Private ownership encourages:  people to take good care of their property  productive development of property  Conservation of resources for the future

 People respond to incentives and, often times, consequences of actions lie in the future  When property rights aren’t clearly defined, people acting in their own self-interest may respond to incentives that counter long-run objectives of society  Example: Pollution

 Unfortunately, property rights to many natural resources are poorly defined  Resources may be wasted or used inefficiently  An important role for government in a market economy is to try to ensure that property rights are clearly defined and protected