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MARKETS AND GOVERNMENT IN A
MODERN ECONOMY
Every individual endeavors to
employ his capital so that its produce
may be of greatest value. He generally
neither intends to promote the public
interest, nor knows how much he is
promoting it. He intends only his own
security, only his own gain. And he is in
this led by an invisible hand to promote
an end which was no part of his
intention. By pursuing his own interest
he frequently promotes that of society
more effectually than when he really
intends to promote it.
- The Wealth of Nations
ADAM SMITH
The Industrial Revolution modernized the United
States and Canada during the 19th century.
Free Enterprise
•An economic system in which
private business operates in
competition and largely free of
state control.
• Sometimes called, “competitive
capitalism”.
“Less regulation and lower taxes mean greater freedom”
Laissez-faire
•Translates as
“leave as alone”
•Government
should interfere as
little as possible in
economic affairs
and leave
economic
decisions to the
marketplace.
An economy in which decisions
regarding investment, production, and
distribution are based on market
determined supply and demand, and
prices of goods and services are
determined in a free price system.
HOW MARKETS SOLVE
THE BASIC ECONOMIC PROBLEMS
Who solves the
three basic questions?
WHAT?
HOW?
FOR WHOM?
In a
MARKET
ECONOMY
No INDIVIDUAL
or
ORGANIZATION
is responsible for
solving the
economic
problems in a
market economy.
Economic Activities are
coordinated without coercion or
centralized direction by
anybody through the market.
No wheatfields? No Fruit Farms?
NO PROBLEM 
NEW YORK CITY LIGHTS
UNION SQUARE HOLIDAY MARKET
UNION SQUARE FARMERS’ MARKET
MARKET ECONOMY
 Is an elaborate mechanism for the
unconscious coordination of people, activities,
and businesses through a system of prices and
markets.
 It is a communication device for pooling the
knowledge and actions of millions of diverse
individuals.
THE MARKET MECHANISM
Market
- where goods are bought and
sold.
- is a mechanism by which
buyers and sellers of a
commodity interact to
determine its price and
quantity.
Centralized
- As for stocks, bonds
and wheats.
Decentralized
- As for houses or used
cars., may even be
electronic market.
Economic miracle = result of a smoothly
running economic mechanism
Equilibriumof Supplyand Demand
WHAT? HOW? FOR WHOM?
THE MARKET
EQUILIBRIUM
This is where the
quantity demanded and
quantity supplied are equal.
The corresponding price
is the equilibrium price or
market-clearing price, the
quantity is the equilibrium
quantity.
Thank You 

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Markets and Government in a Market Economy

  • 1. MARKETS AND GOVERNMENT IN A MODERN ECONOMY
  • 2. Every individual endeavors to employ his capital so that its produce may be of greatest value. He generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security, only his own gain. And he is in this led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it. - The Wealth of Nations ADAM SMITH
  • 3. The Industrial Revolution modernized the United States and Canada during the 19th century.
  • 4. Free Enterprise •An economic system in which private business operates in competition and largely free of state control. • Sometimes called, “competitive capitalism”. “Less regulation and lower taxes mean greater freedom”
  • 5. Laissez-faire •Translates as “leave as alone” •Government should interfere as little as possible in economic affairs and leave economic decisions to the marketplace.
  • 6.
  • 7. An economy in which decisions regarding investment, production, and distribution are based on market determined supply and demand, and prices of goods and services are determined in a free price system.
  • 8. HOW MARKETS SOLVE THE BASIC ECONOMIC PROBLEMS
  • 9. Who solves the three basic questions? WHAT? HOW? FOR WHOM? In a MARKET ECONOMY
  • 10. No INDIVIDUAL or ORGANIZATION is responsible for solving the economic problems in a market economy. Economic Activities are coordinated without coercion or centralized direction by anybody through the market.
  • 11. No wheatfields? No Fruit Farms? NO PROBLEM 
  • 12. NEW YORK CITY LIGHTS
  • 15. MARKET ECONOMY  Is an elaborate mechanism for the unconscious coordination of people, activities, and businesses through a system of prices and markets.  It is a communication device for pooling the knowledge and actions of millions of diverse individuals.
  • 16. THE MARKET MECHANISM Market - where goods are bought and sold. - is a mechanism by which buyers and sellers of a commodity interact to determine its price and quantity. Centralized - As for stocks, bonds and wheats. Decentralized - As for houses or used cars., may even be electronic market. Economic miracle = result of a smoothly running economic mechanism
  • 18. THE MARKET EQUILIBRIUM This is where the quantity demanded and quantity supplied are equal. The corresponding price is the equilibrium price or market-clearing price, the quantity is the equilibrium quantity.

Editor's Notes

  1. Both markets and command economies have their roots in an earlier age. Centuries ago, government councils or town guuilds directed much economic activity in regions of Europe and Asia.
  2. Scottish moral philosopher, father of modern economics who is still among the most influential thinkers in the field of economics today.
  3. Around the time of the American Revolution (where people began to use machines), governments began to exercise less and less direct control over prices and economic conditions
  4. . Feudal relationship gradually gave way to markets…or what is sometimes called
  5. Trend culminated in the nineteenth century. The age of Laissez-faire. Abstention by governments from interfering in the workings of the free market…governments just let things take their own course.
  6. In the 1980’s, the tides shifted yet again. Conservative economic policies reduced government control of the economy in the market economies.
  7. What exactly is a market economy? How does government sometimes displace the market?
  8. The time has come to understand the principles that lie behind the market economy and to review government’s role in economic life.
  9. In a country like the United States, most economic questions are resolved through the market, so we begin our systematic study there.
  10. you may be surprizec that….Instead, millions of businesses and consumers engage in voluntary trade, their actions and purposes are invisibly coordinated by a system of prices and markets.
  11. To see how remarkable this fact is…Consider the city of New York, without constant flow of goods into and out of the City, New Yorkers would be on the verge of starvation within a week.
  12. How is it that 10 million people can sleep easily at night, without living in mortal terror of a breaking down in the elaborate economic processes upon which the city’s existence depends?
  13. Thousands of commodities are produced by millions of people, willingly, without central direction or master plan.
  14. Without central intelligence or computation, it solves a problem that the largest super computer could not solve today, involving million of unknown variable and relations. Nobody designed the market, yet it functions remarkably well.
  15. How does a market function? Exactly how does the market mechanism go about determining prices, wages, and outputs? A mechanism by which buyers and sellers meet to exchange things. In a market system, everything has a price, which is the value of the good in terms of money. Markets may be centralized…
  16. At every moment, innumerable factors affect economic activity. Some people are buying while others are selling; firms are inventing new products while govts are passing laws to regulate pollution. Markets are constantly solving the what, how and for whom. As they balance all the forces operating on the economy, markets are finding an equilibrium of supply and demand.
  17. When the supply and demand curve intersect, the market is in equilibrium. It represents balance among all the different buyers and sellers. Too high a price would mean a glut of goods with too much output, too low a price would produce long lines in stores and a deficiency of goods.
  18. I would like to acknowledge my co reporter, Ms. Saily Sumogat who will tackle about How a market solves the three economic problems.