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

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Presentation on theme: "4 C H A P T E R The Market System."— Presentation transcript:

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

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

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

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

5 GLOBAL PERSPECTIVE Rankings among 156 nations, 2000
Index of Economic Freedom, Selected Nations Rankings among 156 nations, 2000 1 Hong Kong 4 New Zealand 5 United States FREE 13 Chile 14 Canada 20 Germany MOSTLY FREE 75 Malaysia 93 Brazil 106 Poland MOSTLY UNFREE 144 Vietnam 151 Iran 152 Cuba 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 Differences in Ability Fosters Learning by Doing Saves Time

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

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 Chapter Conclusions

24 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, 2002 BACK END

25 THE U.S. ECONOMY Coming up next... Chapter 5


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