The Market System and the Circular Flow 02 McGraw-Hill/Irwin Copyright ? 2012 by The McGraw-Hill Companies, Inc. All rights reserved. The Market System Known as capitalism Characteristics of market systems: Private property Freedom of enterprise and choice Self-Interest Competition Markets and prices Australia, Switzerland, and the U.K. LO1 2-* Global Perspective LO2 Index of Economic Freedom, Selected Nations 2-* Technology and Capital Goods Advanced technology and capital goods are encouraged Specialization Division of labor Geographic specialization LO2 2-* Active, but Limited Government Government may be needed to alleviate market failures Government can increase effectiveness of a market system LO2 2-* The Five Fundamental Questions