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Markets and Government in a Market Economy

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Markets and Government in a Market Economy

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Markets and Government in a Market Economy

  1. 1. MARKETS AND GOVERNMENT IN A MODERN ECONOMY
  2. 2. Every individual endeavors to employ his capital so that its produce may be of greatest value. He generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security, only his own gain. And he is in this led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it. - The Wealth of Nations ADAM SMITH
  3. 3. The Industrial Revolution modernized the United States and Canada during the 19th century.
  4. 4. Free Enterprise •An economic system in which private business operates in competition and largely free of state control. • Sometimes called, “competitive capitalism”. “Less regulation and lower taxes mean greater freedom”
  5. 5. Laissez-faire •Translates as “leave as alone” •Government should interfere as little as possible in economic affairs and leave economic decisions to the marketplace.
  6. 6. An economy in which decisions regarding investment, production, and distribution are based on market determined supply and demand, and prices of goods and services are determined in a free price system.
  7. 7. HOW MARKETS SOLVE THE BASIC ECONOMIC PROBLEMS
  8. 8. Who solves the three basic questions? WHAT? HOW? FOR WHOM? In a MARKET ECONOMY
  9. 9. No INDIVIDUAL or ORGANIZATION is responsible for solving the economic problems in a market economy. Economic Activities are coordinated without coercion or centralized direction by anybody through the market.
  10. 10. No wheatfields? No Fruit Farms? NO PROBLEM 
  11. 11. NEW YORK CITY LIGHTS
  12. 12. UNION SQUARE HOLIDAY MARKET
  13. 13. UNION SQUARE FARMERS’ MARKET
  14. 14. MARKET ECONOMY  Is an elaborate mechanism for the unconscious coordination of people, activities, and businesses through a system of prices and markets.  It is a communication device for pooling the knowledge and actions of millions of diverse individuals.
  15. 15. THE MARKET MECHANISM Market - where goods are bought and sold. - is a mechanism by which buyers and sellers of a commodity interact to determine its price and quantity. Centralized - As for stocks, bonds and wheats. Decentralized - As for houses or used cars., may even be electronic market. Economic miracle = result of a smoothly running economic mechanism
  16. 16. Equilibriumof Supplyand Demand WHAT? HOW? FOR WHOM?
  17. 17. THE MARKET EQUILIBRIUM This is where the quantity demanded and quantity supplied are equal. The corresponding price is the equilibrium price or market-clearing price, the quantity is the equilibrium quantity.
  18. 18. Thank You 

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