Chapter 4 introduce an overview of the market system & the Canadian economy. In this chapter you will learn: The basic institutions required for a market economy, the Four Fundamental Questions any economy faces, how the “invisible hand” helps to close the gap between private & public interests, the role of government in a market economy, about the structure of the Canadian economy.
Trang 1An Overview of the Market System &
the Canadian Economy
Chapter 4
Trang 2In this chapter you will learn
The basic institutions required for a market
economy
The Four Fundamental Questions any economy
faces
How the “invisible hand” helps to close the gap
between private & public interests
The role of government in a market economy
About the structure of the Canadian economy
Trang 3Chapter 4 Topics
Characteristics of the Market System
The Market System at Work
Competition and the Invisible Hand
Market Failure
The Circular Flow Revisited
Structure of the Canadian Economy
Trang 4The Market System
Six basic facets:
private property
• individuals & firms own resources
Trang 5The Market System
Six basic facets:
private property
• individuals & firms own resources
• also intellectual property
Trang 6The Market System
Six basic facets:
private property
• individuals & firms own resources
• also intellectual property
• facilitates exchange
Trang 7The Market System
Six basic facets:
private property
freedom of enterprise & choice
• freedom of enterprise: businesses can buy &
sell as they choose
• freedom of choice:
– owners can use or sell property as they
choose
Trang 8The Market System
Six basic facets:
private property
freedom of enterprise & choice
self-interest
• businesses seek profits
Trang 9The Market System
Six basic facets:
private property
freedom of enterprise & choice
self-interest
competition
• independently acting sellers & buyers
• easy entry & exit
Trang 10The Market System
Six basic facets:
private property
freedom of enterprise & choice
self-interest
competition
markets & prices
• prices signal scarcity & guide resource
allocation
Trang 11The Market System
Six basic facets:
Trang 12MODERN SYSTEMS
Common Characteristics
technology & capital goods
Trang 14• geographic specialization
Trang 16Chapter 4 Topics
Characteristics of the Market System
The Market System at Work
Competition and the Invisible Hand
Market Failure
The Circular Flow Revisited
Structure of the Canadian Economy
& Its Evolution Over Time
Trang 17Four Fundamental Questions
What will be produced?
Every economy must respond to….
Those goods & services which provide a continuing profit
What consumers “vote” for
Trang 18Four Fundamental Questions
What will be produced?
How will the goods & services be produced?
Every economy must respond to….
With the most efficient, least costly production techniques
Trang 19Four Fundamental Questions
What will be produced?
How will the goods & services be produced?
Who will get the goods & services?
Every economy must respond to….
Those with the greatest willingness & ability to pay
Trang 20Four Fundamental Questions
What will be produced?
How will the goods & services be produced?
Who will get the goods & services?
How will the system accommodate change?
Every economy must respond to….
By responding to price & profit signals
guiding function
of prices role in promoting progress
Trang 21Chapter 4 Topics
Characteristics of the Market System
The Market System at Work
Competition and the Invisible Hand
Market Failure
The Circular Flow Revisited
Structure of the Canadian Economy
Trang 22The “Invisible Hand”
prices communicate information
about scarcity & value
competition forces producers &
resource suppliers to respond
firms, acting in their own best
interest, also promote society’s
interests in terms of efficiency
Trang 23The Case for the Market System
Efficiency
Incentives
Freedom
Trang 24Chapter 4 Topics
Characteristics of the Market System
The Market System at Work
Competition and the Invisible Hand
Market Failure
The Circular Flow Revisited
Structure of the Canadian Economy
& Its Evolution Over Time
Trang 25Market Failure
Spillovers or Externalities
spillover costs
Trang 27Market Failure
Spillovers or Externalities
spillover benefits
Trang 29• education, streets, police, fire, etc.
• could be priced/provided by private firms
Trang 30Market Failure
Public Goods and Services
reallocation of resources through the tax
system
resources released from private
consumption and investment to public
and quasipublic goods
Trang 31Chapter 4 Topics
Characteristics of the Market System
The Market System at Work
Competition and the Invisible Hand
Market Failure
The Circular Flow Revisited
Structure of the Canadian Economy
Trang 32The Circular Flow Revisited
RESOURCE MARKETS
SERVICES
RESOURCES
(6)
(1) (2) (7)
(8)
(12) (11)
(5)
Trang 33Chapter 4 Topics
Characteristics of the Market System
The Market System at Work
Competition and the Invisible Hand
Market Failure
The Circular Flow Revisited
Structure of the Canadian Economy
Trang 34Structure of the Canadian Economy
Production shares by sector selected years 1870-2000
Trang 35Structure of the Canadian Economy
Employment shares by sector selected years 1891-2000
Trang 36Structure of the Canadian Economy
foreign ownership
• costs & benefits
Trang 37Chapter 4 Topics
Characteristics of the Market System
The Market System at Work
Competition and the Invisible Hand
Market Failure
The Circular Flow Revisited
Structure of the Canadian Economy
Trang 38CANADA IN THE GLOBAL ECONOMY
CHAPTER 5