Self-interest Entrepreneurs try to maximize profit or minimize

loss. Property owners try to get the highest price for

the sale or rent of their resources. Workers try to maximize their utility (satisfaction)

by finding jobs that offer the best combination of wages, hours, fringe benefits, and working conditions.

Consumers try to obtain the products they want at the lowest possible price and apportion their expenditures to maximize their utility.

© 2013 McGraw-Hill Ryerson Ltd. Chapter 2, LO2 1

Competition Independently acting sellers and buyers

operating in a particular product or factor market

Freedom of sellers and buyers to enter or leave markets, on the basis of their economic self-interest

© 2013 McGraw-Hill Ryerson Ltd. Chapter 2, LO2 2

© 2013 McGraw-Hill Ryerson Ltd. Chapter 2, LO2 3

Free

1 Hong Kong

3 Australia

6 Canada

Mostly Free

9 United States

20 Japan

31 Spain

Mostly Unfree

113 Brazil

135 China

143 Russia

Repressed

171 Iran

175 Venezuela

179 North Korea

Markets and Prices A market is an institution or mechanism

that brings buyers (“demanders”) and sellers (“suppliers”) into contact.

The coordinating mechanism of capitalism is a system of markets and prices.

© 2013 McGraw-Hill Ryerson Ltd. Chapter 2, LO2 4

Technology and Capital Goods Extensive use of technologically

advanced capital goods helps market economies achieve greater efficiency in production.

©2013 McGraw-Hill Ryerson Ltd. Chapter 2, LO2 5

Specialization Division of labour▪ ability differences▪ learning by doing▪ saving time switching tasks

Geographic specialization

©2013 McGraw-Hill Ryerson Ltd. Chapter 2, LO2 6

Use of money FIGURE 2-1 Money Facilitates Trade When Wants Do Not

Coincide

©2013 McGraw-Hill Ryerson Ltd. Chapter 2, LO2 7

Active, But Limited, Government Market failures The central government, along with the

central bank, needs to take action if a market economy is experiencing recession or inflation.

©2013 McGraw-Hill Ryerson Ltd. Chapter 2, LO2 8