1. 4
C H A P T E R
The Market System

2. CAPITALIST IDEOLOGY PRIVATE PROPERTY SELF- INTEREST COMPETITION
FREEDOM OF
ENTERPRISE
& CHOICE
SELF-
INTEREST
COMPETITION

3. CAPITALIST IDEOLOGY LARGE NUMBERS ENTRY & EXIT PRIVATE PROPERTY SELF-
FREEDOM OF
ENTERPRISE
& CHOICE
LARGE
NUMBERS
SELF-
INTEREST
ENTRY &
EXIT
COMPETITION

4. CAPITALIST IDEOLOGY PRIVATE PROPERTY SELF- INTEREST MARKETS & PRICES
FREEDOM OF
ENTERPRISE
& CHOICE
SELF-
INTEREST
COMPETITION
MARKETS
& PRICES
ACTIVE, BUT
LIMITED,
GOVERNMENT

5. GLOBAL PERSPECTIVE Rankings among 156 nations, 2003
Index of Economic Freedom, Selected Nations
Rankings among 156 nations, 2003
1 Hong Kong
3 New Zealand
6 United States
FREE
16 Chile
18 Canada
40 France
MOSTLY FREE
72 Malaysia
99 Pakistan
127 China
MOSTLY UNFREE
146 Iran
155 Cuba
156 North Korea
REPRESSED
Source: Heritage Foundation & The Wall Street Journal

6. Reliance on Technology
CAPITALIST IDEOLOGY
Other Characteristics
Reliance on Technology
and Capital Goods
Roundabout
Production

7. Reliance on Technology Specialization and Efficiency
CAPITALIST IDEOLOGY
Other Characteristics
Reliance on Technology
and Capital Goods
Specialization and Efficiency

8. Reliance on Technology Specialization and Efficiency
CAPITALIST IDEOLOGY
Other Characteristics
Reliance on Technology
and Capital Goods
Specialization and Efficiency
Division of Labor

9. Reliance on Technology Specialization and Efficiency
CAPITALIST IDEOLOGY
Other Characteristics
Reliance on Technology
and Capital Goods
Specialization and Efficiency
Differences in Ability
Fosters Learning by Doing
Saves Time

10. Reliance on Technology Specialization and Efficiency
CAPITALIST IDEOLOGY
Other Characteristics
Reliance on Technology
and Capital Goods
Specialization and Efficiency
Geographic Specialization

11. Reliance on Technology
CAPITALIST IDEOLOGY
Other Characteristics
Reliance on Technology
and Capital Goods
Specialization and Efficiency
Use of Money
As a Medium of Exchange

12. Reliance on Technology Specialization and Efficiency
CAPITALIST IDEOLOGY
Other Characteristics
Reliance on Technology
and Capital Goods
Specialization and Efficiency
Use of Money
Barter System Difficulties

13. The Four Fundamental Questions...
THE MARKET SYSTEM AT WORK
The Four Fundamental Questions...
What will be produced?

14. The Four Fundamental Questions...
THE MARKET SYSTEM AT WORK
The Four Fundamental Questions...
How will the goods be
produced?
What will be produced?

15. The Four Fundamental Questions...
THE MARKET SYSTEM AT WORK
The Four Fundamental Questions...
What will be produced?
How will the goods be
produced?
Who will get the goods
and services?

16. The Four Fundamental Questions...
THE MARKET SYSTEM AT WORK
The Four Fundamental Questions...
What will be produced?
How will the goods be
produced?
Who will get the goods
and services?
How will the system
accommodate change?

17. Economic or Pure Profit Normal Profit Expanding Industry
WHAT WILL BE PRODUCED?
Economic Profit = Total Revenue – Total Cost
Economic or Pure Profit
Normal Profit
Expanding Industry
Declining Industry
Consumer Sovereignty

18. Economic or Pure Profit Normal Profit Expanding Industry
WHAT WILL BE PRODUCED?
Economic Profit = Total Revenue – Total Cost
Economic or Pure Profit
Normal Profit
Expanding Industry
Declining Industry
Consumer Sovereignty
Dollar Votes
Market Restraints on Freedom
Derived Demand

19. Least Cost Production Available Technology Economic Efficiency
HOW WILL THE GOODS AND
SERVICES BE PRODUCED?
Least Cost Production
Resource Prices
Resource Productivity
Transportation Costs
Available Technology
Economic Efficiency

20. Rationing Function of Equilibrium Prices Income Constraints
WHO WILL GET THE GOODS
AND SERVICES?
Market System
Rationing Function of Equilibrium Prices
Income Constraints
Resource Prices

21. HOW WILL THE SYSTEM ACCOMMODATE CHANGE?
Dynamic Market Systems
Guiding Function of Prices
Role in Promoting Progress
Technological Advance
Creative Destruction
Capital Accumulation

22. Efficiency Incentives Freedom COMPETITION AND THE INVISIBLE HAND
The Case for the Market System
Efficiency
Incentives
Freedom

23. KEY TERMS private property freedom of enterprise freedom of choice
self-interest
competition
roundabout production
specialization
division of labor
medium of exchange
barter
money
Four Fundamental Questions
economic costs
normal profit
economic profit
expanding industry
declining industry
consumer sovereignty
dollar votes
derived demand
guiding function of prices
creative destruction
“invisible hand”
Copyright McGraw-Hill/Irwin, 2005
BACK
END

24. Coming up next... THE U.S. ECONOMY Chapter 5
Private and Public Sectors