Bài giảng Macro - Chapter 4 An Overview of the Market System & the Canadian Economy

An Overview of the Market System & the Canadian EconomyChapter 4SLIDES PREPARED BY JUDITH SKUCE, GEORGIAN COLLEGEIn this chapter you will learnThe basic institutions required for a market economyThe Four Fundamental Questions any economy facesHow the “invisible hand” helps to close the gap between private & public interestsThe role of government in a market economyAbout the structure of the Canadian economyChapter 4 TopicsCharacteristics of the Market SystemThe Market System at WorkCompetition and the Invisible HandMarket FailureThe Circular Flow RevisitedStructure of the Canadian Economy & Its Evolution Over TimeThe Market SystemSix basic facets:private propertyindividuals & firms own resourcesThe Market SystemSix basic facets:private propertyindividuals & firms own resourcesalso intellectual propertyThe Market SystemSix basic facets:private propertyindividuals & firms own resourcesalso intellectual propertyfacilitates exchangeThe Market SystemSix basic facets:private propertyfreedom of enterprise & choicefreedom of enterprise: businesses can buy & sell as they choosefreedom of choice: owners can use or sell property as they chooseworkers can work where they likeconsumers can buy what they wantThe Market SystemSix basic facets:private propertyfreedom of enterprise & choiceself-interestbusinesses seek profitsconsumers seek valueThe Market SystemSix basic facets:private propertyfreedom of enterprise & choiceself-interestcompetitionindependently acting sellers & buyerseasy entry & exitThe Market SystemSix basic facets:private propertyfreedom of enterprise & choiceself-interestcompetitionmarkets & pricesprices signal scarcity & guide resource allocationThe Market SystemSix basic facets:private propertyfreedom of enterprise & choiceself-interestcompetitionmarkets & pricesactive, but limited governmentMODERN SYSTEMSCommon Characteristicstechnology & capital goodsMODERN SYSTEMSCommon Characteristicstechnology & capital goodsspecializationdivision of labourability differenceslearning by doingsaving time switching tasksMODERN SYSTEMSCommon Characteristicstechnology & capital goodsspecializationdivision of labourability differenceslearning by doingsaving time switching tasksgeographic specializationMODERN SYSTEMSCommon Characteristicstechnology & capital goodsspecializationuse of moneyChapter 4 TopicsCharacteristics of the Market SystemThe Market System at WorkCompetition and the Invisible HandMarket FailureThe Circular Flow RevisitedStructure of the Canadian Economy & Its Evolution Over TimeFour Fundamental QuestionsWhat will be produced?Every economy must respond to.Those goods & services which provide a continuing profitWhat consumers “vote” forconsumer sovereigntyFour Fundamental QuestionsWhat will be produced?How will the goods & services be produced?Every economy must respond to.With the most efficient, least costly production techniquesFour Fundamental QuestionsWhat will be produced?How will the goods & services be produced?Who will get the goods & services?Every economy must respond to.Those with the greatest willingness & ability to payFour Fundamental QuestionsWhat will be produced?How will the goods & services be produced?Who will get the goods & services?How will the system accommodate change?Every economy must respond to.By responding to price & profit signalsguiding function of pricesrole in promoting progresstechnological advancecreative destructioncapital accumulationChapter 4 TopicsCharacteristics of the Market SystemThe Market System at WorkCompetition and the Invisible HandMarket FailureThe Circular Flow RevisitedStructure of the Canadian Economy & Its Evolution Over TimeThe “Invisible Hand”prices communicate information about scarcity & valuecompetition forces producers & resource suppliers to respondfirms, acting in their own best interest, also promote society’s interests in terms of efficiencyThe Case for the Market SystemEfficiencyIncentivesFreedomChapter 4 TopicsCharacteristics of the Market SystemThe Market System at WorkCompetition and the Invisible HandMarket FailureThe Circular Flow RevisitedStructure of the Canadian Economy & Its Evolution Over TimeMarket FailureSpillovers or Externalitiesspillover costsMarket FailureSpillovers or Externalitiesspillover costscorrection throughlegislationspecific taxesMarket FailureSpillovers or Externalitiesspillover benefitsMarket FailureSpillovers or Externalitiesspillover benefitscorrection throughsubsidization of consumers/suppliersprovision via governmentMarket FailurePublic Goods and Servicesindivisibleexclusion principle does not applyfree-rider problemQuasi-Public goodseducation, streets, police, fire, etc.could be priced/provided by private firmsbecause of positive spillovers, government intervenesMarket FailurePublic Goods and Servicesreallocation of resources through the tax systemresources released from private consumption and investment to public and quasipublic goodsChapter 4 TopicsCharacteristics of the Market SystemThe Market System at WorkCompetition and the Invisible HandMarket FailureThe Circular Flow RevisitedStructure of the Canadian Economy & Its Evolution Over TimeThe Circular Flow RevisitedBUSINESSESHOUSEHOLDSRESOURCEMARKETSPRODUCTMARKETSGOODS &SERVICESGOODS &SERVICESGOVERNMENT(2)RESOURCES(1)COSTSNET TAXES(9)GOODS &SERVICESNET TAXES$GOODS &SERVICESREVENUECONSUMPTION SPENDINGLANDLABOURCAPITAL$ INCOME-RENTSINTERESTWAGESPROFITS$(10)GOODS &SERVICESRESOURCES(6)(1)(2)(7)(8)(12)(11)(4)(3)(3)(4)(5)Chapter 4 TopicsCharacteristics of the Market SystemThe Market System at WorkCompetition and the Invisible HandMarket FailureThe Circular Flow RevisitedStructure of the Canadian Economy & Its Evolution Over TimeStructure of the Canadian EconomyStructure of the Canadian EconomyStructure of the Canadian Economyforeign ownershiphigh, mostly Americancosts & benefitsChapter 4 TopicsCharacteristics of the Market SystemThe Market System at WorkCompetition and the Invisible HandMarket FailureThe Circular Flow RevisitedStructure of the Canadian EconomyIts Evolution Over TimeNEXT...CANADA IN THE GLOBAL ECONOMYCHAPTER 5