tailieunhanh - Lecture Macroeconomics (20/e): Chapter 2 - McConnell, Brue, Flynn

Chapter 2 - The market system and the circular flow. This chapter begins with a brief comparison of command and laissez-faire systems, then transitions to a discussion of the characteristics of a market system. The five fundamental questions faced by every economy are presented along with how a market economy answers each one. | Chapter 2 The Market System and the Circular Flow Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. This chapter begins with a brief comparison of command and laissez-faire systems, then transitions to a discussion of the characteristics of a market system. The five fundamental questions faced by every economy are presented along with how a market economy answers each one. A discussion of Adam Smith’s “invisible hand” leads into an explanation of why command systems have failed. The circular flow model provides an overview of how resources and goods move through a market system. The chapter includes a discussion of how a market system deals with risk. The Last Word provides a look at the vast number of ways resources could be arranged and why this doesn’t result in randomness. Economic Systems Economic systems Set of institutionalized arrangements Coordinating mechanism . | Chapter 2 The Market System and the Circular Flow Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. This chapter begins with a brief comparison of command and laissez-faire systems, then transitions to a discussion of the characteristics of a market system. The five fundamental questions faced by every economy are presented along with how a market economy answers each one. A discussion of Adam Smith’s “invisible hand” leads into an explanation of why command systems have failed. The circular flow model provides an overview of how resources and goods move through a market system. The chapter includes a discussion of how a market system deals with risk. The Last Word provides a look at the vast number of ways resources could be arranged and why this doesn’t result in randomness. Economic Systems Economic systems Set of institutionalized arrangements Coordinating mechanism Differences in systems exist by Degree of decentralized use of markets and prices in decision-making Degree of centralized government control LO1 Economic systems are a set of institutional arrangements and a coordinating mechanism to solve economic problems. Economic systems differ in how much decentralized decision-making is enjoyed in the country versus how much centralized government command and control is used to direct economic activity in that country. Laissez-Faire Capitalism Ideal economy “Keep the government from interfering with the economy” Power of government just needed to Protect private property from theft Provide a legal environment for contract enforcement People interact in markets to buy and sell LO1 Laissez-faire capitalism is the ideal economic system that Adam Smith envisioned in his book “The Wealth of Nations”. There is no need for government interference in markets because the system is a self-correcting one. In laissez-faire systems, the role of government is .