Chapter 3

• Private ownership of property: have right to their own means of production
• Consumer sovereignty: consumers are powerful to help determine the four economical questions
• Freedom of enterprise: entrepreneurs have the right to manipulate consumers to make their products more attractive
• Competition the force that allows the market economy and price mechanism to work. This also ensure that no business can control or influenced the market
• The four main market forces are:

  Private ownership of property

  Consumer Sovereignty

  Freedom of enterprise

  Competition
• Modified economy includes the government's intervention
• Government interventions include

  • Resource allocation:
  • To make society keep on running since merit good will not be provided by this private sector
  • Restricting and regulating harmful goods and services
  • Income distribution:
  • To make a fairer society and ensure well-being
  • Includes welfare payments from tax collection
  • Economic stability
  • To smooth out sharp fluctuations in business cycle which includes taxes and social welfare expenditure change
• Merit good goods and services not produced. In sufficient quantity since individuals don't place value on them. This is due to the fact that the private sector cannot get/hard to specify the profits from such goods
• The mixed economy solves economic questions differently when the government intervenes
• How much to produce (government intervention):

  • Govt. Can limit production of some goods through greater provision for certain G&S
  • Can provide subsidies
  • Can encourage Australia's producers with foreigners to increase production
  • Enforcing tariffs/higher tariffs
• How to produce (government intervention)

  • Influence process of production, eg, make things more environmentally friendly
  • Laws regulating certain types of Labour (such as child labour)
• How to distribute production? (Government intervention): this is done through redistributing income from the rich to the poor
• Subsidy: a cash payment for the amount of extra units the govt. wants to be sold. This takes away the risk factor of "how much to produce"
• Consumers send signals to the producer to tell them what they want through buying excessively and vice versa