The document outlines key concepts and characteristics of the market system, including private property, freedom of enterprise, self-interest, competition, specialization, and the four fundamental questions of what to produce, how to produce it, who gets it, and how the system accommodates change. It also discusses the role of prices, profits, costs, and consumer sovereignty in determining production and allocation in a market economy.

1. The Market System 4 C H A P T E R

2. CAPITALIST IDEOLOGY FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY SELF- INTEREST COMPETITION

3. LARGE NUMBERS ENTRY & EXIT CAPITALIST IDEOLOGY FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY SELF- INTEREST COMPETITION

4. CAPITALIST IDEOLOGY MARKETS & PRICES FREEDOM OF ENTERPRISE & CHOICE PRIVATE PROPERTY ACTIVE, BUT LIMITED, GOVERNMENT SELF- INTEREST COMPETITION

5. GLOBAL PERSPECTIVE Index of Economic Freedom, Selected Nations FREE MOSTLY FREE MOSTLY UNFREE REPRESSED Rankings among 156 nations, 2003 Source: Heritage Foundation & The Wall Street Journal 1 Hong Kong 3 New Zealand 6 United States 16 Chile 18 Canada 40 France 72 Malaysia 99 Pakistan 127 China 146 Iran 155 Cuba 156 North Korea

6. Other Characteristics CAPITALIST IDEOLOGY Reliance on Technology and Capital Goods Roundabout Production

7. Other Characteristics CAPITALIST IDEOLOGY Reliance on Technology and Capital Goods Specialization and Efficiency

11. Other Characteristics Specialization and Efficiency As a Medium of Exchange CAPITALIST IDEOLOGY Use of Money Reliance on Technology and Capital Goods

12. Other Characteristics Barter System Difficulties CAPITALIST IDEOLOGY Use of Money Reliance on Technology and Capital Goods Specialization and Efficiency

13. The Four Fundamental Questions... What will be produced? THE MARKET SYSTEM AT WORK

14. The Four Fundamental Questions... How will the goods be produced? What will be produced? THE MARKET SYSTEM AT WORK

15. The Four Fundamental Questions... How will the goods be produced? What will be produced? Who will get the goods and services? THE MARKET SYSTEM AT WORK

16. The Four Fundamental Questions... How will the goods be produced? What will be produced? Who will get the goods and services? How will the system accommodate change? THE MARKET SYSTEM AT WORK

20. Market System Rationing Function of Equilibrium Prices Income Constraints Resource Prices WHO WILL GET THE GOODS AND SERVICES?

22. The Case for the Market System Efficiency Incentives Freedom COMPETITION AND THE INVISIBLE HAND

23. KEY TERMS private property freedom of enterprise freedom of choice self-interest competition roundabout production specialization division of labor medium of exchange barter money Four Fundamental Questions economic costs normal profit economic profit expanding industry declining industry consumer sovereignty dollar votes derived demand guiding function of prices creative destruction “invisible hand” Copyright McGraw-Hill/Irwin, 2005 BACK END

24. Coming up next... Chapter 5 Private and Public Sectors THE U.S. ECONOMY