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Markets & Government in the

Economy
Chapter 2

Main topics
Markets an introduction
Trade, money and capital
Role of government

Markets
Definition mechanism for buyers & sellers to
interact to determine prices and exchange goods &
services

Market equilibrium balance among all buyers &


sellers

How markets solve the three problems

Chapter 2
Figure 2-1

The Market System Relies on Supply and


Demand to Solve the Trio of Economic
Problems

Trade, money & capital


Trade, specialization and division of labor
Trade & surplus production
Specialization
Gains from trade
Trade, specialization & economic growth

Money lubricant of exchange


Capital, specialization, trade & growth

Economic role of government


Efficiency perfect competition &
violations
Imperfect competition
Externalities
Public goods

Equit
Macroeconomic growth and stability

Chapter 2
Table 2-1