2. 4 - 1 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show 4 C H A P T E R The Market System

3. 4 - 2 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show CAPITALIST IDEOLOGY FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY SELF- INTEREST COMPETITION

4. 4 - 3 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY SELF- INTEREST COMPETITION LARGE NUMBERS ENTRY & EXIT CAPITALIST IDEOLOGY

5. 4 - 4 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show MARKETS & PRICES FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY ACTIVE, BUT LIMITED, GOVERNMENT SELF- INTEREST COMPETITION CAPITALIST IDEOLOGY

6. 4 - 5 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show GLOBAL PERSPECTIVE Index of Economic Freedom, Selected Nations 1 Hong Kong 3 New Zealand 6 United States 16 Chile 18 Canada 40 France 72 Malaysia 99 Pakistan 127 China 146 Iran 155 Cuba 156 North Korea FREE MOSTLY FREE MOSTLY UNFREE REPRESSED Rankings among 156 nations, 2003 Source: Heritage Foundation & The Wall Street Journal

7. 4 - 6 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show Other Characteristics CAPITALIST IDEOLOGY Reliance on Technology and Capital Goods Roundabout Production

8. 4 - 7 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show Other Characteristics Reliance on Technology and Capital Goods Specialization and Efficiency CAPITALIST IDEOLOGY

9. 4 - 8 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show Other Characteristics Reliance on Technology and Capital Goods Specialization and Efficiency Division of Labor CAPITALIST IDEOLOGY

10. 4 - 9 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show Other Characteristics Reliance on Technology and Capital Goods Specialization and Efficiency Differences in Ability Fosters Learning by Doing Saves Time CAPITALIST IDEOLOGY

11. 4 - 10 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show Other Characteristics Reliance on Technology and Capital Goods Specialization and Efficiency Geographic Specialization CAPITALIST IDEOLOGY

12. 4 - 11 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show Use of Money Other Characteristics Reliance on Technology and Capital Goods Specialization and Efficiency As a Medium of Exchange CAPITALIST IDEOLOGY

13. 4 - 12 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show Use of Money Other Characteristics Reliance on Technology and Capital Goods Specialization and Efficiency Barter System Difficulties CAPITALIST IDEOLOGY

14. 4 - 13 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show The Four Fundamental Questions... What will be produced? THE MARKET SYSTEM AT WORK

15. 4 - 14 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show The Four Fundamental Questions... How will the goods be produced? What will be produced? THE MARKET SYSTEM AT WORK

16. 4 - 15 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show The Four Fundamental Questions... How will the goods be produced? What will be produced? Who will get the goods and services? THE MARKET SYSTEM AT WORK

17. 4 - 16 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show The Four Fundamental Questions... How will the goods be produced? What will be produced? Who will get the goods and services? How will the system accommodate change? THE MARKET SYSTEM AT WORK

18. 4 - 17 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show Economic or Pure Profit Normal Profit Expanding Industry Declining Industry Consumer Sovereignty WHAT WILL BE PRODUCED? Economic Profit = Total Revenue – Total Cost

19. 4 - 18 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show Economic or Pure Profit Normal Profit Expanding Industry Declining Industry Consumer Sovereignty Dollar Votes Market Restraints on Freedom Derived Demand WHAT WILL BE PRODUCED? Economic Profit = Total Revenue – Total Cost

20. 4 - 19 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show Least Cost Production Resource Prices Resource Productivity Transportation Costs Available Technology Economic Efficiency HOW WILL THE GOODS AND SERVICES BE PRODUCED?

21. 4 - 20 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show Market System Rationing Function of Equilibrium Prices Income Constraints Resource Prices WHO WILL GET THE GOODS AND SERVICES?

22. 4 - 21 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show Dynamic Market Systems Guiding Function of Prices Role in Promoting Progress Technological Advance Creative Destruction Capital Accumulation HOW WILL THE SYSTEM ACCOMMODATE CHANGE?

23. 4 - 22 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show The Case for the Market System Efficiency Incentives Freedom COMPETITION AND THE INVISIBLE HAND

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

25. 4 - 24 Copyright McGraw-Hill/Irwin, 2005 Capitalist Ideology Four Fundamental Questions What to Produce? How to Produce? Who Gets Production? Can System Accommodate Change? Invisible Hand Key Terms Previous Slide Next Slide End Show THE U.S. ECONOMY Coming up next... Chapter 5 Private and Public Sectors