ECN 104 Lecture Notes - Lecture 2: Absolute Advantage, Creative Destruction, Planned Economy
Document Summary
3: saving time, avoiding switching tasks, geographic specialization, use of money, acts as medium of exchange barter requires coincidence of wants. Coincide: active but limited government, market failures. 4: changes in consumer tastes, changes in technology, changes in resource prices, the directing or guiding function of prices and profits is a core element of the market system, how will the system promote progress, technological advance. In development of new and more efficient techniques. Incentives: the market system encourages skill acquisition, hard work, and innovation, freedom, rewards and penalties are imposed by the market system, the demise of the command system, the coordination problem, the incentive problem, the circular flow model. Input suppliers dislike risk: attracting inputs, the security makes it easier for firms to attract labour and other inputs, focusing attention, the profit system helps to achieve prudent risk management. In a command system, the responsibility for managing risk is spread out.
