Chapter 8 - The power and limits of markets. After completing this unit, you should be able to: Describe the resource allocation and resource ownership decisions facing societies, classify the basic types of economic systems, describe the differences in types of ownership of resources,...
Trang 1Introduction to Economics: Social Issues and Economic Thinking
Wendy A Stock
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by
Z Pan
Chapter 8
The Power and Limits of
Markets
Copyright © 2013 John Wiley & Sons, Inc / Photo Credit: ©Anna Zielinska/iStockphoto
Trang 2Ø Describe the resource
allocation and resource
ownership decisions facing
societies
Ø Classify the basic types of
economic systems
Ø Describe the differences in
types of ownership of resources
Ø Describe the differences in types of decision making about resource allocation
Ø Evaluate the tradeoffs between efficiency and equity; security and liberty
Ø Understand the concept of market failure
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After studying this chapter, you should be
able to:
Trang 3Ø The resource allocation decisions of a society determine how the resources are shared among society’s citizens.
Ø The resource ownership decisions of a society determine the property rights over the resources
in a society.
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& Sons, Inc.
3
Resource allocation and ownership decisions
Trang 4Ø Command Systems use governmental
regulation or central planning to allocate
resources.
Ø Market Systems use decentralized interactions between buyers and sellers to allocate
resources.
Resource Allocation systems
Trang 5Ø Socialist Systems use public property
ownership.
Ø Capitalist Systems use private property
ownership.
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& Sons, Inc.
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Resource Ownership systems
Trang 6Ø Market Capitalism is an economic system that uses private property ownership and private resource
allocation decisions
Ø Command Socialism is an economic system that
uses public property ownership and public resource allocation decisions
Ø Market Socialism is an economic system that uses public property ownership and private resource
allocation decisions
Ø Command Capitalism is an economic system that uses private property ownership and public resource allocation decisions
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& Sons, Inc.
6
TYPES OF ECONOMIC SYSTEMS
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& Sons, Inc.
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TYPES OF ECONOMIC SYSTEMS
Trang 8Efficiency
Ø Market capitalist systems are quite effective at
generating efficient resource allocations
Ø The Invisible Hand is the self-regulating mechanism
of market systems that generates allocation of
resources based on self-interest, competition, and comparative advantage
Ø Command socialist systems are not as well suited
to generate economic efficiency
JUDGING ALTERNATIVE ECONOMIC
SYSTEMS
Trang 9Equity
Ø Market capitalist systems are unlikely to produce equitable results
Ø Command socialist economic systems are more likely than market capitalist systems to achieve an equitable resource allocation
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& Sons, Inc.
9
JUDGING ALTERNATIVE ECONOMIC
SYSTEMS
Trang 10Liberty (Individual Freedom)
Because they rely on individual actors and individual decision-making, market based systems tend to
generate more personal liberty than do
command-based systems Similarly, because they rely on
private rather than public property, capitalist systems tend to provide more liberty than do socialist systems
JUDGING ALTERNATIVE ECONOMIC
SYSTEMS
Trang 11Security
Because command socialist economic systems tend
to be more equitable, and because obtaining that
equity involves redistribution of income from some
groups to others through taxes or other policies,
command socialist economic systems generate more economic security than do market capitalist economic systems
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& Sons, Inc.
11
JUDGING ALTERNATIVE ECONOMIC
SYSTEMS
Trang 12Market Failure - When the market generates an
inefficient allocation of goods or services
Ø Monopolies
Ø Public Goods
Ø Externalities
Ø Imperfect Information
Market Failure
Trang 13A monopoly is a market with only one seller of a good
or service
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& Sons, Inc.
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Market Failure
Trang 14Public Goods
A public good is one where the seller cannot exclude nonbuyers from using it
Market Failure
Trang 15Externalities are costs or benefits of a trade that are imposed on people outside the trade
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& Sons, Inc.
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Market Failure
Trang 16Imperfect Information
Imperfect information occurs when the full costs or benefits of a trade are not known to all of the parties engaged in the trade
Market Failure
Trang 17Copyright © 2013 John Wiley
& Sons, Inc.
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China and many of the countries in Central and Eastern Europe are classified as
“transition economies” because they are in the process of moving from centrally planned, command socialist economic systems toward market capitalist systems.
What kinds of changes do you think take place for individuals and policy makers during this process?.
Trang 18Copyright © 2013 John Wiley
& Sons, Inc.
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Key Concepts
• Resource allocation
• Resource ownership
• Command system
• Market system
• Socialist system
• Capitalist system
• Market capitalism
• Command socialism
• Market socialism
• Command capitalism
• Invisible hand
• Market failure
• Monopoly
• Public good