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ECON 1000
David Stamos

The role of the market Markets: are institutions that bring together buyers and sellers to exchange goods and services. Market: is a process by which households decisions on consumption, firm’s decisions on production and sales and worker decisions on working hours are all reconciled by the adjustment in prices. Note: price adjustments are the key to ensuring that scarce resources are allocated to produce what society wants. The command economy: when a government office decides what is to be produced, how it is produced and for whom. (Central planner makes resource allocation decision) Free market: when the governments do not intervene, and do not regulate unduly Invisible hand: is the assertion that the individual pursuit of self interest within free markets will allocate resources efficiently from a societal viewpoint. This means that individuals perusing their self interest will solve the, what how and for whom problems. The mixed economy: Government and the private sector jointly solve economic problems. The government influences decisions through taxation, subsidies, transfers and the provisions of particular services. It also regulates the extent to which individuals may pursue their own interests. Goods and services are supplied by both the private sector and the government. Positive and normative economics Positive economics: Studies objective or scientific explanations of how the economy functions. Aims to understand and generate predictions about how the economy may respond to changes and policy initiatives. Focus on facts and cause and effect relationship. (Studies how the economy functions.) Normative economics: Offers recommendations that incorporate scientific investigation and value judgment. Incorporates a pe
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