Chap04rev
24
4 - 1 Copyright McGraw-Hill/Irwin, 2005 Capitalist Id eology Four Fundamen tal Questions What to Produ ce? How to Produc e? Who Gets Prod uction? Can System Ac commodate Cha nge? Invisible Han d Key Terms Previo us Slide Next Slid e End End Show Show 4 C H A P T E R The Market System
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Transcript of Chap04rev
4 - 1Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
4C H A P T E R
The Market System
4 - 2Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
CAPITALIST IDEOLOGY
FREEDOM OFENTERPRISE
& CHOICE
PRIVATEPROPERTY
SELF-INTEREST
COMPETITION
4 - 3Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
FREEDOM OFENTERPRISE
& CHOICE
PRIVATEPROPERTY
SELF-INTEREST
COMPETITION
LARGENUMBERS
ENTRY &EXIT
CAPITALIST IDEOLOGY
4 - 4Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
MARKETS& PRICES
FREEDOM OFENTERPRISE
& CHOICE
PRIVATEPROPERTY
ACTIVE, BUTLIMITED,
GOVERNMENT
SELF-INTEREST
COMPETITION
CAPITALIST IDEOLOGY
4 - 5Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
GLOBAL PERSPECTIVEIndex of Economic Freedom, Selected Nations
1 Hong Kong3 New Zealand6 United States
16 Chile18 Canada40 France
72 Malaysia99 Pakistan127 China146 Iran155 Cuba
156 North Korea
FREE
MOSTLYFREE
MOSTLYUNFREE
REPRESSED
Rankings among 156 nations, 2003
Source: Heritage Foundation & The Wall Street Journal
4 - 6Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Other CharacteristicsCAPITALIST IDEOLOGY
Reliance on Technologyand Capital Goods
RoundaboutProduction
4 - 7Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Other Characteristics
Reliance on Technologyand Capital Goods
Specialization and Efficiency
CAPITALIST IDEOLOGY
4 - 8Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Other Characteristics
Reliance on Technologyand Capital Goods
Specialization and Efficiency
•Division of Labor
CAPITALIST IDEOLOGY
4 - 9Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Other Characteristics
Reliance on Technologyand Capital Goods
Specialization and Efficiency
•Differences in Ability•Fosters Learning by Doing•Saves Time
CAPITALIST IDEOLOGY
4 - 10Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Other Characteristics
Reliance on Technologyand Capital Goods
Specialization and Efficiency
•Geographic Specialization
CAPITALIST IDEOLOGY
4 - 11Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Use of Money
Other Characteristics
Reliance on Technologyand Capital Goods
Specialization and Efficiency
As a Medium of Exchange
CAPITALIST IDEOLOGY
4 - 12Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Use of Money
Other Characteristics
Reliance on Technologyand Capital Goods
Specialization and Efficiency
Barter System Difficulties
CAPITALIST IDEOLOGY
4 - 13Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
The Four Fundamental Questions...What will be produced?
THE MARKET SYSTEM AT WORK
4 - 14Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
The Four Fundamental Questions...
How will the goods be produced?
What will be produced?
THE MARKET SYSTEM AT WORK
4 - 15Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
The Four Fundamental Questions...
How will the goods be produced?
What will be produced?
Who will get the goods and services?
THE MARKET SYSTEM AT WORK
4 - 16Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
The Four Fundamental Questions...
How will the goods be produced?
What will be produced?
Who will get the goods and services?How will the system accommodate change?
THE MARKET SYSTEM AT WORK
4 - 17Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Economic or Pure ProfitNormal ProfitExpanding IndustryDeclining IndustryConsumer Sovereignty
WHAT WILL BE PRODUCED?Economic Profit = Total Revenue – Total Cost
4 - 18Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Economic or Pure ProfitNormal ProfitExpanding IndustryDeclining IndustryConsumer Sovereignty
•Dollar VotesMarket Restraints on Freedom
•Derived Demand
WHAT WILL BE PRODUCED?Economic Profit = Total Revenue – Total Cost
4 - 19Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Least Cost Production•Resource Prices•Resource Productivity•Transportation Costs
Available TechnologyEconomic Efficiency
HOW WILL THE GOODS ANDSERVICES BE PRODUCED?
4 - 20Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Market SystemRationing Function of
Equilibrium PricesIncome ConstraintsResource Prices
WHO WILL GET THE GOODSAND SERVICES?
4 - 21Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Dynamic Market SystemsGuiding Function of PricesRole in Promoting ProgressTechnological Advance
•Creative DestructionCapital Accumulation
HOW WILL THE SYSTEMACCOMMODATE CHANGE?
4 - 22Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
The Case for the Market System
EfficiencyIncentivesFreedom
COMPETITION ANDTHE INVISIBLE HAND
private property
freedom of enterprise
freedom of choice
self-interest
competition
roundabout production
specialization
division of labor
medium of exchange
barter
money
Four Fundamental Questions
economic costs
normal profit
economic profit
expanding industry
declining industry
consumer sovereignty
dollar votes
derived demand
guiding function of prices
creative destruction
“invisible hand”Copyright McGraw-Hill/Irwin, 2005 BACK END
4 - 24Copyright McGraw-Hill/Irwin, 2005
Capitalist Ideology
Four Fundamental Questions
What to Produce?
How to Produce?
Who Gets Production?
Can System Accommodate Change?
Invisible Hand
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
THE U.S. ECONOMYTHE U.S. ECONOMYComing up next...
Chapter 5
Private and Public Sectors
