Economic Market Systems

Economic System

• An economic system is the system of producing and distributing goods and services and allocating resources in a society.

– Market Economy– Planned (Command) Economy– Traditional Economy– Mixed Economy

Adam Smith – 1723-1790• Wealth of Nations 1776– Father of Modern Economics

– “The Invisible Hand”

– Praised free market systems

– Also warned about greed, corruption, and exploitation of

consumers.

– People are guided not by the social

good but by their own self interest.

The Invisible Hand

• Individuals in pursuit of their own self-interest will benefit society because it benefits them.

• Example: Technology– A company wants to increase its profits.• It develops a smaller more powerful computer because

they know consumers want it and will pay for it.• Society as a whole benefits from the new technology.

The Invisible Hand

Market Economy (Capitalism)

• Private ownership of property and the “means of production” with the goal of making profits in the market.

• Prices set by market forces.

• Incentives make risk, hard work and innovation worthwhile.

• Decisions about production are made by supply and demand.

Examples of Market Economy

• No true Free-Market Economy exists

• These all come close– Hong K0ng– Australia – Switzerland

Market Economy• Based on the ideas of Laissez-faire– Little to no government intervention or regulation. – Only regulations that do exist are those that

protect property rights.– Literally means “let us do” or “Let it be”

Market Economy• Benefits– It allows for the creation of immense wealth.– Efficient allocation of resources.– Consumers determine what they want and

producers supply it.– Prices are low because of competition.

Market Economy

• Criticisms– Though it can create immense wealth it creates

immense inequality.– Without regulations and government intervention

workers and consumers can be easily exploited. (i.e. low wages, child labor, unsafe working conditions, unsafe products).

– Efficient does not always mean what’s best for social welfare.

Pope Francis• ”The worldwide crisis affecting finance and

the economy lays bare their imbalances and, above all, their lack of real concern for human beings; man is reduced to one of his needs alone: consumption.”

• “We can no longer trust in the unseen forces and the invisible hand of the market.”

“The Pyramid of Capitalism”Industrial Workers of the World

Poster (1911)

Inequality in Americahttp://www.youtube.com/watch?v=LlYojsi3Zqw

Labor Tensionshttp://www.youtube.com/watch?v=waY0R8Atw10

Market Economy Summary• Private Ownership

• Little to no Government interference

• Markets determine production and price

• Efficient use of resources

• Incentives – risks, hard work, and innovation

can lead to higher profits

• Freedom to make your own choices