Topic

The Market System and the Circular Flow

Instructions

Read pages 32-43 of Economics.

Consider the following as you read:

What is the difference between laissez-faire capitalism, the command system, and the market system?
How does the “invisible hand” operate and why do market economies usually do a better job than command economies at efficiently transforming economic resources into desirable output?

Answer Preview

A laissez-faire economy is one whereby transactions between different business organizations or individuals are not subject to enforced monopolies, government subsidies, and tariffs. Notably, a laissez fair economy indicates even less government directive partly because there could be no subsidies or tariffs which might impact demand and supply. In essence, laissez fair is considered to be a plea for the administration to stop starting monopolies, offering special privileges, and assisting and safeguarding favored businesses and industries.

Word Count: 200