BELTEI International University

The Future of Global Leaders

WEEK 4
Subject: Principles of Economics
Year 1, Semester 1 (NP+IP)
Unit 4: Markets and Non-Market Economy
Lesson 4: Introduction

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 Learning Outcomes
By the end of the lesson, students will be able to:
• Understand what Market means
• Understand what Non-market means

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 Introduction
• In general, “the market” is smarter than the smartest of its individual participants. Robert L.
Bartley{272} Although business enterprises based on profit have become one of the most
common economic institutions in modern industrialized nations, an understanding of how
businesses operate internally and how they fit into the larger economy and society is not
nearly as common.

• The prevalence of business enterprises in many economies around the world has been so
taken for granted that few people ask the question why this particular way of providing the
necessities and amenities of life has come to prevail over alternative ways of carrying out
economic functions.

• Among the many economically productive endeavors at various times and places
throughout history, capitalist businesses are just one. Human beings lived for thousands of
years without businesses. Tribes hunted and fished together.

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 Introduction
• During the centuries of feudalism, neither serfs nor nobles were businessmen.
Even in more recent centuries, millions of families in America lived on self-
sufficient farms, growing their own food, building their own houses, and making
their own clothes.

• Even in more recent times, there have been cooperative groups, such as the Israeli
kibbutz, where people have voluntarily supplied one another with goods and
services, without money changing hands.

• In the days of the Soviet Union, a whole modern, industrial economy had
government-owned and government-operated enterprises doing the same kinds
of things that businesses do in a capitalist economy, without in fact being
businesses in either their incentives or constraints.

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 4.1| BUSINESSES VERSUS NON-MARKET
PRODUCERS
• The fact that businesses have largely displaced Examples:
many other ways of organizing the production of
goods and services suggests that the cost • These government enterprises may
advantages, reflected in prices, are considerable. be either isolated phenomena or
• This is not just a conclusion of free market
part of a comprehensive set of
economists.

• In The Communist Manifesto, Marx and Engels said organizations based on government
of capitalist business, “The cheap prices of its ownership of the means of
commodities are the heavy artillery with which it
batters down all Chinese walls.”{273}
production, namely socialism.
• That by no means spared business from criticism, • There have been many theories
then or later. Since there are few, if any, people
who want to return to feudalism or to the days of
about the merits or demerits of
self-sufficient family farms, government enterprises market versus non-market ways of
are the primary alternative to capitalist businesses
producing goods and services.
today.
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 4.2| WINNERS AND LOSERS
• Many people who appreciate the prosperity created by Examples
market economies may nevertheless lament the fact that
• It was not coincidental that Smith
particular individuals, groups, industries, or regions of the
country do not share fully in the general economic
Corona began losing millions of
advances, and some may even be worse off than before.
dollars a year on its typewriters
• Political leaders or candidates are especially likely to deplore
when Dell began making millions on
the inequity of it all and to propose various government its computers.
“solutions” to “correct” the situation. • Computers were replacing
• Whatever the merits or demerits of various political typewriters. Nor was it coincidental
proposals, what must be kept in mind when evaluating that sales of film began declining
them is that the good fortunes and misfortunes of different
with the rise of digital cameras.
sectors of the economy may be closely related as cause and
effect—and that preventing bad effects can prevent good
effects..

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 4.2| WINNERS AND LOSERS
• The fact that scarce resources have • Examples:
alternative uses implies that some • Some of the resources used for
enterprises must lose their ability to manufacturing cameras that used
use those resources, in order that film had to be redirected toward
others can gain the ability to use producing digital cameras.
them. Smith Corona had to be • Nor was this a matter of anyone’s
prevented from using scarce fault.
resources, including both materials
and labor, to make typewriters,
when those resources could be
used to produce computers that the
public wanted more.

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 4.2| WINNERS AND LOSERS
• No matter how fine the • Examples:
typewriters made by Smith • During all eras, scarcity implies
Corona were or how skilled that resources must be taken
and conscientious its from some in order to go to
employees, typewriters were others, if new products and
no longer what the public new methods of production
wanted after they had the are to raise living standards.
option to achieve the same
end result—and more—with
computers. Some excellent
cameras that used film were
discontinued when new
digital cameras were created.

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 4.2| WINNERS AND LOSERS
• What can be done
Examples:
instead is to recognize
that economic changes 1. Technology
have been going on for
centuries and that there 2. Education
is no sign that this will
stop—or that the 3. ATM
adjustments necessitated 4. Bank industry
by such changes will stop.
5. Sport field

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 4.2| WINNERS AND LOSERS
• This applies to government, Examples:
to industries and to the 1. Tax
people at large. Neither
2. E-government
enterprises nor individuals
can spend all their current 3. Documents
income, as if there are no 4. Paper work
unforeseeable contingencies 5. Working hours
to prepare for

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 4.2| WINNERS AND LOSERS

• Among others, it described an executive Examples:

whose job at a major corporation was 1. 17,555
eliminated in a reorganization of the 2. 18,555
company, and who consequently had to
3. 19,555
sell “two of the three horses” she
4. 20,555
owned and also sell “$16,500 worth of
5. 21,555
Procter stock, cutting into savings to
support herself while she hunted for
work.”

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 KEY CONCEPTS AND SUMMARY

• Although this executive had more • Although this executive had more
than a million dollars in savings and than a million dollars in savings
owned a seventeen acre estate,{289} and owned a seventeen acre
it was presented as some tragic estate,{289} it was presented as
failure of society that she had to some tragic failure of society that
make adjustments to the ever- she had to make adjustments to
changing economy which had the ever-changing economy which
produced such prosperity in the first had produced such prosperity in
place. the first place.

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 Key Term / Glossary
• Circular flow diagram a diagram that views the
economy as consisting of households and firms
interacting in a goods and services market and a
labor market
• Command economy an economy where economic
decisions are passed down from government
authority and where resources are owned by the
government
• Division of labor the way in which the work
required to produce a good or service is divided
into tasks performed by different workers
• Economics the study of how humans make choices
under conditions of scarcity
• Economies of scale when the average cost of
producing each individual unit declines as total
output increases
• Exports products (goods and services) made
domestically and sold abroad
• Fiscal policy economic policies that involve
government spending and taxes
• Globalization the trend in which buying and
selling in markets have increasingly crossed
national borders
• Goods and services market a market in which
firms are sellers of what they produce and
households are buyers
• Gross domestic product (GDP) measure of the
size of total production in an economy
• Imports products (goods and services) made
abroad and then sold domestically
• Labor market the market in which households
sell their labor as workers to business firms or
other employers
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Comprehension Questions

1. Who will be the winners after

all?
2. Who will be the losers after
all?
3. How to decide winners and
losers?

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SELF-CHECK QUESTIONS

Activity 91

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 Assignment
1. What did you learn from the lesson today?
(Reflection Writing in Journal Book)

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