New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

ECON1020 Market system& circular flow

by: Janelle Darby

ECON1020 Market system& circular flow Econ 1020

Marketplace > Robert Morris University > Economics > Econ 1020 > ECON1020 Market system circular flow
Janelle Darby

GPA 3.1

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

These notes cover the different forms of market systems and the circular flow model
Principles of Macroeconomics
Zhou Yang
Class Notes
Macroeconomics, market, Systems, circular, flow, diagram
25 ?




Popular in Principles of Macroeconomics

Popular in Economics

This 4 page Class Notes was uploaded by Janelle Darby on Friday September 9, 2016. The Class Notes belongs to Econ 1020 at Robert Morris University taught by Zhou Yang in Fall 2016. Since its upload, it has received 11 views. For similar materials see Principles of Macroeconomics in Economics at Robert Morris University.


Reviews for ECON1020 Market system& circular flow


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 09/09/16
W2 Market System& Circular Flow Economic System  Institution Arrangements  Coordinating Mechanism  Differences o Who owns factors of production  Factors of production: land, capital, labor, and entrepreneurial ability o The method used to motivate, coordinate, and direct economic activity  Command System o Known as socialism or communism o Gov’t owns the factors of production o Decisions made by a central planning board  Libya, Myanmar, & Iran The degree of the command system shows the gov’t power  Market System o Known as capitalism o Private ownership of resources o Decisions based on the market  Australia, Switzerland, UK If everything is owned by the gov’t it does not give people the incentive to produce better quality  Characteristics: o Private property  Exclusive, transferable, enforceable  Mutually agreeable transactions  Encourages investments, innovation, maintenance of property, & economic growth  Ex: rental car o Freedom of enterprise  Freedom to obtain & use resources to produce and sell products of their choice o Freedom of Choice  Freedom to make consumption choice, occupation choice, etc. Both choices free with in broad legal limitations o Self-Interest  Entrepreneurs max profits& min losses  Resource suppliers max increase  Consumers satisfactions o Competition W2  Large #’s of sellers: no single producer or seller can control the price or market supply  Large #’s of buyers: no single consumer or employer can control the price or market demand  No or less barriers to enter or exit the market Competition among buyers and sellers spreads economic power within the businesses & households that make up the economy o Markets & Prices  Market is an institution or mechanism that brings buyers and sellers into contact  Value placed on product by consumer determines the price and further decisions on the product The role of money 1. Barter o Swapping goods for goods o Poses serious problems because it requires a coincidence of wants between buyer& seller Coincidence of wants: both buyer& seller need to have what the other needs/ wants 2. Medium Of Exchange o Money  Social invention to facilitate exchanges of goods& services The Role of the Gov’t 3. Alleviates market failures o Market failures: Monopoly, Externality  Monopoly: only a single seller of a good, service, or resource.  Externality: cost or benefit from production or consumption, accruing without compensation to someone other than the buyers and sellers of the product. o Increase effectiveness of market system  Information asymmetry The 5 fundamental questions 1. What goods and services will be produced?  Profit generating goods & services  Dollar votes o Consumers determine:  which industry will exist  which goods are produced W2 2. How to produce goods and services?  Minimum cost per unit by using the most efficient technology o Technology: the availability of knowledge o Prices of necessary resources The producer will choose the method that cost the least because the method leads to the greatest profit 3. Who will get the output?  Consumers with the ability and willingness to pay for the product  The ability depends on income Market is based on the willingness to pay principle Willingness to pay principle: if the consumer gets the product 4. How will the system change?  Changes in consumer taste  Changes in technology  Changes in resource prices Society desires economic growth& higher standards of living 5. How will the system progress?  Technology advance o Including: new and improved methods that reduce production cost& product price this creates competition o Creative destruction: when new products are made the old ones become obsolete and the companies begin to lose business  Capital Accumulation: Technology advances require additional goods o Market system provides the resources to produce capital goods through dollar votes Invisible hand  1776 Wealth of nations by Adam Smith o Promotes public or social interest  3 virtues of the market system 1. Efficiency: the market system promotes the use of resources by guiding them into the production of goods and services most wanted by society 2. Incentives: Market system encourages skill, acquisition, hard work, and innovation 3. Freedom: Non- economic argument for market system is its emphasis on personal freedom W2 Adam smith is referred to as the “father of economics”. Emphasizes the role of self interest in motivating economic activity is especially important. Demise of command systems  Ex: Soviet Union and China  Reason: System was a failure  The coordination problem o Set output targets for all goods  The incentive problem o No adjustments for surplus or shortage Circular Flow Model  The circular flow diagram: visual model of the economy that shows how dollars flow through markets among households& firms o Firms  Produce & sell goods & services  Hire & use factors of production o Households: one or more persons occupying a housing unit  Buy and consume goods and services  Own& sell factors of production o Markets for goods and services  Firms sell  Households buy o Markets for factors of production  Households sell  Firms buy  Factors of production o Inputs used to produce goods& services o Land, Labor, and capital


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Amaris Trozzo George Washington University

"I made $350 in just two days after posting my first study guide."

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.