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ECN104 - Ch 2 Notes.docx

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ECN 104
Thomas Barbiero

ECN 104 – Chapter 2 Notes 2.1 Economic Systems Economic System A particular set of institutional and a coordinating mechanism for producing goods and services Commend System (aka Socialism or Communist) Most property resources are owned by government Economic decisions are made by a central government body Market System (aka Capitalism) Property resources are privately owned Market and prices are used to direct and coordinate economic activities (including natural resources), “Prices make the world go around” 2.2 Characteristics of the Market System Private Property The right of private persons/firms to obtain/own/control/employ/dispose of/bequeath land, capital, and other property Freedom of Enterprise & Choice Freedom of enterprise: Business can buy and sell as they please Freedom of choice: Owners can use/sell property as they choose Workers can work where they like Consumers can buy what they want Self-Interest Entrepreneurs try to maximize profit/minimize loss Property owners try to get the highest prices from sale/rent of their resources Workers try to maximize utility (satisfaction), finding jobs that offer the best combination of wage, hours, fringe benefits and working conditions Consumers try to obtain wanted products at the lowest price possible Competition Independent sellers and buyers operating in a particular product/factor market Freedom of sellers and buyers to enter/leave markets Markets and Prices Market: institution/mechanism that connects buyers (demanders) & sellers (suppliers) Coordinating mechanism of capitalism is a system of markets and prices Technology and Capital Goods Extensive use of technological advanced capital goods help market economies achieve greater efficiency in production Specialization Division of Labor: ability differences, learning by doing, saving time switching tasks Geographical Specialization ie: certain crops are better suited to some areas compared to others Use of money Substitute for barter/trade which requires the double coincidence Medium of Exchange “I may want what you produce, but I may not want to exchange for what I have” Activ
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