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One reason why I use our textbook is
because they have a chapter on market economies and they
used to have a chapter on command economies (now just a
small section). In this lesson we find out for the first
time that competitive market economies are efficient, both
allocatively and productively. This is the result of the
"invisible hand" of capitalism. This is a general theme for
the whole course that we will discuss again in lessons 3, 5,
and lessons 8 to 13. Many textbooks simply assume that
students know what a capitalist economy (market economy) is
because we live in one here in the United States. But, I
learned long ago that students do not understand the
characteristics of captialism nor the benefits of, or the
problems with, market economies. All over the world
countries are moving away from command economies toward a
market economy. Why? We will learn it is because market
economies are better at achieving allocative and productive
efficiency, and economic growth, but they do seem have a
problem with equity and at times full
employment.
One characteristic of a market
economy is a limited role for government. Periodically we
will discuss just WHAT IS the economic role of government?
What should the government do, or not do? This is where
Republicans and Democrats seem to have a fundamental
disagreement, but I think they agree more than they believe.
Remember this: the economic goal of society is to maximize
its satisfaction (reduce scarcity as much as possible). And
they do this by achieving the 5Es. The economic role of
government then ALSO should be to achieve the 5Es. We will
return to this issue of the economic role of government at
different times thoughout the course.
Our first discussion of this economic
role for government will be FREE TRADE. Should the United
States have free trade with other countries like Mexico and
China, or should the government impose trade restrictions?
We will examine this question by using the production
possibilities model that we learned in lesson
1d.
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