BSM 100 Lecture Notes - Lecture 2: Invisible Hand, Economic Equilibrium, Mixed Economy

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7/28/16
Week 2: The Genesis of A Business
Economics
-Economy: financial and social system representing resource flow from productions
distribution…consumption
-Economics: study of people, companies, and governmentschoices in allocating soci-
ety’s resources
-Macroeconomics: countries overall economy
-Microeconomics: consumers, families, and businesses
-Capitalism:
Free market (everything is decided by the market, the invisible hand concept; the
market is able to regulate itself); produce, distributed, consumers, supply
-We come to a equilibrium price based on how much people will pay and how
much can be supplied for what price. i.e price (y-axis) and demand (x-axis), and
where they meet, create an equilibrium price where they meet. Very elastic and
unpredictable.
-Because the government is not intervening many suppliers go out of the market,
leaving only one or two players…Monopoly system, leaving people at the whim
of the one supplier
-However, the market is not efficient for everyone, sometimes the government has
to step in
-Communism:
The government runs everything, not invisible hand like capitalism, a very visible
and prominent hand
The government owns all the enterprises
Idea of equal distribution, aid (which over time is not good, must move forward), op-
portunities and ensuring all people have access to these opportunities (education,
health care)…From this we have modern welfare states (socialistic), mixed
economies
Couldn’t manage the incentive system very well, no drive to do well, make profit
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