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Principle 6: Markets Are Usually a Good Way to Organize Economic Activity
Transcript of Principle 6: Markets Are Usually a Good Way to Organize Economic Activity
Daulet Two types of economy:
1) Centralized Economy
2) Market Economy A Central Planner—Government
Premise that government officials were in the best position to allocate the economy’s scarce resources
Government decided what goods were produced, how much was produced, and who produced and consumed these goods
Government prevents the prices from adjusting naturally to supply and demand Principle 6:
Markets Are Usually a Good Way to Organize Economic Activity The government decides how much goods you can buy per month according to your occupation.
e.g. Cadres: 15kg/month
Worker: 22.5kg/month Countries:
Cuba and North Korea In Market
Economy - Market economy: An economy that allocates
resources through the decentralized decisions of
many firms and households as they interact in
markets for goods and services.
- Prices are the instrument with which the invisible
hand directs economic activity.
- Prices adjust to guide these individuals to
maximize the well-being of society as a whole.
- Scarce resources are well allocated. Invisible Hand
How does it work? Conclusion:
- Advanced and developing countries need free markets
- Markets best utilize the sources of production--land, labor and capital
- Planned economies are inefficient Thank You
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