Download Economics Unit 3 Markets

Unit 3 Markets
Who wins in the market?
Chapter 2 Economic Systems
Chapter 3 American Free Enterprise
Chapter 7 Market Structures
Three Economic Questions
What goods and services should be
produced?
 How should goods and services be
produced?
 Who consumes goods and services?

Three Economic Questions?
What goods and
services should be
produced?
 Needs and Wants?
 Guns and Butter?
 What are the
opportunity
costs?
Three Economic Questions?

How should goods and
services be produced?

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Electricity
 Oil
 Solar
 Air
 Coal
Manual vs. machine
labor
Three Economic Questions?

Who consumes goods
and services?
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Growing markets
Shrinking markets
Target audience
 Demographics
Factor Payments
 the income people
receive for supplying
factors of production.
Economic Goals and Societal Values

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Economic Efficiency
Economic Security and Predictability
Economic Growth and Innovation
Societal Values
Economic Goals
Economic Efficiency

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
Most societies try to
maximize what they
can get for the
resources that they
have to work with
What can you
produce if you are
given a 100 acre
field?
 Manheim Auto
Auction?
 Farm?
Economic Goals
Economic Security
and Predictability

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
Goods and services will
be available when you
need them
Safety Net

Set of government
programs that protect
people experiencing
unfavorable economic
conditions, such as:
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Disabilities
lay-offs
natural disasters
severe shortages
Economic Goals
Economic Growth and
Innovation

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Standard of Living –
level of economic
prosperity
Products that we
purchase are more
useful and more
convenient and more
plentiful than in
previous generations
Economic Goals
Societal Values

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Environmental Protection

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Full Employment

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Production does not destroy the way we live
What % of unemployment is acceptable?
Under six percent
Universal Medical Care

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Medical care for all people, regardless of wealth or
status
Medicare and Medicade
The Free Market
Why Markets Exist

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Market

an arrangement that
allows buyers and sellers
to exchange things.
Specialization

concentration of the
production efforts of
individuals and firms on a
limited number of
activities.

easier to learn one task
very well.
What is the official occupation for this man?
Free Market Economy
Individuals and businesses

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Household
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
own the factors of production
make what they want
buy what they want
is a person or a group of people living in the same
residence
Firm

organization that uses resources to produce a
product, which it then sells.
Free Market Economy
Factor Market

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Firms purchase factors of production from
households.
Hire workers, pay wages, borrow money.
Product Market

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Goods and services that firms produce that are
purchased by households.
Free Market Economy
Why Does the Market Place
Work So Well?

The Self-Regulating Nature of the Marketplace

Adam Smith

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Father of modern economics
Wrote The Wealth of Nations (1776)
Self-Interest

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buyers and sellers own personal gain
it is the motivating factor behind the economy.
Invisible Hand

Adam Smith’s term to describe the self-regulating
nature of the marketplace
Free Market Economy
Economic Efficiency
Economic Freedom
As a self-regulating system, a free
market economy is efficient.
Free market economies have the
highest degree of economic freedom
of any economic system.
Economic Growth
Additional Goals
Because competition encourages Free markets offer a wider variety of
innovation, free markets encourage goods and services than any other
growth.
economic system.
Centrally Planned Economies (CPE)

Government own both land and capital

Government controls where you work and how
much you earn
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Wages
Farmers are told what to plant
Manufacturers told what to make
Self-interest and competition do not exist in CPE
Socialism vs. Communism (CPE)
Socialism
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Social and political belief that democratic means
should be used to distribute wealth

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Evenly throughout society
Government owns major industries, as well as
utilities
Communism
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CPE with all economic and political power in the
hands of the central government.
Authoritarian
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requires strict obedience to the government.
Usually takes the form of a dictator (Stalin, Castro)
Rise of Mixed Economies

The Limits of
Laissez Faire
 doctrine that states
that government
generally should
not intervene in
the market place.

Laissez Faire doesn’t work
in the modern economy.
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National Defense
Roads/Highways
Education
Government Protects
Business
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Patents
Property rights
Anti-monopoly
Just compensation
Balancing Control and Freedom
Each nation must
decide the opportunity
costs of pursuing
goals:

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Army
Unemployment
Public education
Subsidize farms
Chapter 3
American Free Enterprise
What
are the basic principles of the U.S.
free enterprise system?
What role does the consumer play in the
system of free enterprise?
What is the role of the government in the
free enterprise system?
The Basic Principles of Free
Enterprise
Profit Motive

The drive for the
improvement of material
well-being.
Open opportunity

The ability for anyone to
compete in the
marketplace.
Legal equality

Equal rights to all.
Private property rights

The right to control your
possessions as you wish.
Free contract

The right to decide what
agreements in which you
want to take part.
Voluntary exchange

The right to decide what
and when you want to
buy and sell a product.
Competition

The rivalry among sellers
to attract consumers.
The Consumer’s Role
•
A fundamental purpose
of the free enterprise
system is to give
consumers the freedom
to make their own
economic choices.
• Through their
economic dealings
with producers,
• consumers make their
desires known.
• When buying
products,
• they indicate to
producers what to
produce and how much
to make.
The Consumer’s Role
• Consumers can also make their desires
known by joining
• interest groups
• which are private organizations that try to
persuade public officials to vote according to the
interests of the groups’ members.
The Government’s Role
• Americans expect the government to
protect them from potential problems that
arise from the production of various
products or the products themselves.
The Government’s Role

Public Disclosure
Laws

Laws that require
companies to provide
consumers with
important information
about their products,
such as fuel efficiency
of automobiles, sideeffects of medication.

Public Interest

Both state and federal
governments’
involvement in
concerns of the public
as a whole, such as
environmental
protection, sanitary
food production.
What are the basic principles of
the U.S. free enterprise system?
1. Americans generally favor
(a) strong government control of the economy.
(b) limited government intervention in the economy.
(c) no government intervention in the economy.
(d) government control of manufacturing only.
2. The basic principles of free enterprise do NOT
include
(a) competition.
(b) legal equality.
(c) profit motive.
(d) checks and balances
What are the basic principles of
the U.S. free enterprise system?
1. Americans generally favor
(a) strong government control of the economy.
(b) limited government intervention in the economy.
(c) no government intervention in the economy.
(d) government control of manufacturing only.
2. The basic principles of free enterprise do NOT
include
(a) competition.
(b) legal equality.
(c) profit motive.
(d) checks and balances
Promoting Growth and Stability
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How does the government track and seek to
influence business cycles?
How does the government try to promote
economic strength?
Why and how does the government
encourage innovation?
Tracking Business Cycles

Macroeconomics

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A business cycle

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is the study of the behavior and decision making
of entire economies.
is a period of a macroeconomic expansion
followed by a period of contraction.
One measure of a nation’s macroeconomy is
gross domestic product (GDP).

GDP is the total value of all final goods and
services produced in a particular economy.