How Markets Work

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How Markets Work Powered By Docstoc
					How Markets Work

          Marlene Kim
           Assoc. Prof.
       Dept of Economics
    University of Mass. Boston
       100 Morrissey Blvd.
       Boston, MA 02125
      617/287-6954 (voice)
     Marlene.Kim@umb.edu
          In any economy…

• What do we want to produce?
• How much do we want to produce?
• How do we produce these things we
  want?
• How much do we sell these items for?
• Who receives these products?
     Command Economy (Centrally
             Planned)
•   Told what to produce by the state (gov’t)
•   Told who to sell products to
•   Told what the prices are
•   Workers told where they would work
•   State (Communist party; gov’t) owned all
    the factories, land, houses
       Worker Cooperatives
• Workers decide what to produce
• Workers decide who to sell to
• Workers decide prices, whom to hire, train,
  layoff
     In the US: Market Economy
             (Capitalist)
• Owners (of factories, companies) decide what to
  produce
• Individuals (store owners) and groups
  (stockholders) own factories, farms, stores,
  houses, raw materials
• Economic choices are made by individuals: sell
  stores, factories, sell labor;
• Businesses decide what products to produce,
  how to produce them, whom to hire, prices to
  sell
• Consumers decide what they want to buy
       Pure Market Model
• Large number of small businesses
  producing things and selling them
• Large number of consumers, buyers of
  these products
• No individual business or buyer can affect
  the prices of a product or service sold.
• No government
• Private ownership of means of production
• Economic choices are made by individuals
• Choices are executed by markets:
  interaction of buyers and sellers
           Self-interest
• Consumers: best products at lowest
  prices

• Producers: make most profit

• Workers: high wages, good benefits
    These choices are executed
        through the market
• Interaction of buyers and sellers
                 Prices
• Provide signals to producers, consumers,
  workers
• Allocates products (what is produced)
• Tells businesses what to sell, how many
          If need money . . .
• Sell stock, ownership in company

• Stock owners: can vote for those on
  Board of Directors, can vote on policy
                Policy?
• No government interference
• Prevent monopolies
  Does the market work this way?
         Why or why not?
• If it works this way, where?
          Mixed Economy
• Some large firms

• Some government

				
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posted:6/27/2011
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