Download Understanding the Market System

Understanding the basic
operation of an
economic system
Allocating resources in a
market economy
limited resources or
The Factors of
Production…
The root of the scarcity
problem
Factors of Production
Groups of resources used to make
all goods and services
Land,
 labor,
 capital,
 entrepreneurship

Privately owned
in a market
system
LAND
Natural resources
LABOR
Any effort a person devotes to a
task for which that person is
paid
CAPITAL
Any human made resource that
is used to create other goods
and services
• Physical capital goods like
building and tools for the purpose
of production
• Human capital is the knowledge
and skills a worker gains through
education and experience
ENTREPRENEURSHIP
A person who
assembles the factors of
production to create
goods and services
Risk-taker!
Circular flow of
economic activity
Tying it all together…
Maintaining a proper functioning
a free market is not easy or simple
The Pillars of Free
Enterprise
Pillar
Explanation (From producer
view & consumer view)
Example
Private Property
For purposes of business
enterprise, or as a result of
consumer choice
Factory owner
Home owner
Car owner
Choice
For purposes of production and
profit, to fulfill consumer
wants/needs
open a business
Choose a profession job
Consumer choice
Voluntary Exchange
Where the producer and
Places of exchange (mall,
consumer come together: the
internet)
marketplace (willingly buy or sell) Contracts
Competition
Within industries –maintain
quality and fair prices, As
consumers (demand) push
prices up
Gas stations, Airline
industries, Supermarkets,
Stock Market
Economic Incentives For purpose of profit, wage,
interest,
Or “get a good deal”
Successful entrepreneurs
make big money -profit
Salary, Fringe benefits
PAYMENTS: Economic Incentive
RENT
SALARY
INTEREST
PROFIT
•LAND
•LABOR
•CAPITAL
•ENTREPRENEURSHIP
Why
money…
Government’s Role?
From Res. Owners to Gov’t
–
–
taxes
Productive services
From Bus. Owners to Gov’t
–
–
taxes
business services
From Gov’t to Res Owners
–
–
money payments
Gov’t services
From Gov’t to Bus Owners
–
–
money payments
Gov’t services
Gross Domestic Product
one of the primary indicators used to
gauge the health of a country's economy
at its most basic: a total of what everyone
has earned in a year (income approach),
or by a total of what everyone spent
(expenditure method).
what GDP represents, has a large impact
on nearly everyone within that economy
Adapted from:
http://www.investopedia.com/ask/answers/199.asp
HOW DO THE FOUR FACTORS OF
PRODUCTION AND THE CIRCULAR
FLOW OF ECONOMIC ACTIVITY RELATE
TO …
UNEMPLOYMENT?
GOVERNMENT
SPENDING?
BUSINESS GROWTH?
MINIMUM WAGE?