Market Economic System - Student Presentation PDF

Market economic system By: Nafiseh Ahmadi Gr 10 Definition  A market economy is an economic system where two forces, known as supply and demand, direct the production of goods and services.  Market economies are not controlled by a central authority (like a government) and are instea...

Market economic system By: Nafiseh Ahmadi Gr 10 Definition  A market economy is an economic system where two forces, known as supply and demand, direct the production of goods and services.  Market economies are not controlled by a central authority (like a government) and are instead based on voluntary exchange.  But miss! What are the other markets called?  In a command economy, a government body controls the factors of production, and determines how much to produce and what price to sell it for.  A regulated market (RM) or coordinated market is an idealized system where the government or other organizations oversee the market, control the forces of supply and demand, and to some extent regulate the market actions. Advantages (aka. Why are free markets good for us?)  1. A wide variety of goods and services will be produced.  2. Firms will respond quickly to changes in consumer wants and spending patterns.  3. The profit motive of firms encourage them to develop new products and more efficient production methods.  4. There are very few, if any, taxes and regulations. Disadvantages (aka. Does it make money?)  1. Some worthwhile goods and services will not be produced because they are not profitable enough.  2. Firms will only supply products to consumers who are most able to pay for them.  3. Resources will only be employed if it is profitable to do so.  4. Harmful goods may be produced if it is profitable to do so.  5. Firms may disregard the welfare of people, animals and the environment. The role of the government (aka. What the big guys do about the bullies)  Regulator setting maximum prices, setting minimum standards of services  Consumer using It’s buying power to force some firms to increase the supply of certain goods at certain prices  Producer Directly employing factors of production to provide goods that the public sector would’nt. Market Failure  The interaction of consumer demand and producer supply decisions in markets can result in an inefficient and undesirable allocation of resources in an economy in the following ways:  1. Public goods will not be provided  2. Too few merit goods will be supplied and consumed  3. Demerit goods will be supplied  4. Some firms may exploit their consumers and employees  5. Factor immobility obstructs the ability of firms to allocate resources efficiently  Goods and services with external costs may be over produced  Goods and services with external benefits may be under provided Mixed economic system A mixed economic system combines government planning and ownership of resources with the use of the free market economic system to determine the allocation of resources in an economy. Ownership is divided between: Private sector Public sector Benefits of Government participation Direct provision of goods and services (investing in schools and hospitals and hiring workforce) Implementing regulations including price controls Indirect taxes (raising prices of undesirable goods) Subsidies (reducing the cost of production of desirable products) Problems created by government intervention 1. They take a long time to agree on what to do and longer to have an impact. 2. Price controls encourage smuggling and black markets. 3. Taxes, subsidies and price controls may distort final market price of goods. 4. Regulations can increase production costs. 5. Public sector may produce poor quality goods and services. 6. Government interventions may cause conflicts of interest. 7. Some government interventions may be based on political and personal choices and not the best interest of society and the economy.