Unit 3 Markets Who wins in the market?

1. Unit 3 MarketsWho wins in the market? Chapter 2 Economic Systems Chapter 3 American Free Enterprise Chapter 7 Market Structures

2. Three Economic Questions • What goods and services should be produced? • How should goods and services be produced? • Who consumes goods and services?

3. Three Economic Questions? What goods and services should be produced? • Needs and Wants? • Guns and Butter? • What are the opportunity costs?

4. Three Economic Questions? • How should goods and services be produced? • Electricity • Oil • Solar • Air • Coal • Manual vs. machine labor

5. Three Economic Questions? • Who consumes goods and services? • Growing markets • Shrinking markets • Target audience • Demographics • Factor Payments • the income people receive for supplying factors of production.

6. Economic Goals and Societal Values • Economic Efficiency • Economic Security and Predictability • Economic Growth and Innovation • Societal Values

7. Economic Goals • Economic Efficiency • 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?

8. Economic Goals • Economic Security and Predictability • 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: • Disabilities • lay-offs • natural disasters • severe shortages

9. Economic Goals • Economic Growth and Innovation • Standard of Living– level of economic prosperity • Products that we purchase are more useful and more convenient and more plentiful than in previous generations

11. Economic Goals • Societal Values • Environmental Protection • Production does not destroy the way we live • Full Employment • What % of unemployment is acceptable? • Under six percent • Universal Medical Care • Medical care for all people, regardless of wealth or status • Medicare and Medicade

12. The Free Market • Why Markets Exist • 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?

13. Free Market Economy • Individuals and businesses • own the factors of production • make what they want • buy what they want • Household • is a person or a group of people living in the same residence • Firm • organization that uses resourcesto produce a product, which it then sells.

14. Free Market Economy • Factor Market • Firms purchase factors of production from households. • Hire workers, pay wages, borrow money. • Product Market • Goods and services that firms produce that are purchased by households.

15. Free Market Economy

16. Why Does the Market Place Work So Well? • The Self-Regulating Nature of the Marketplace • Adam Smith • Father of modern economics • Wrote The Wealth of Nations (1776) • Self-Interest • 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

17. Free Market Economy

18. Centrally Planned Economies (CPE) • Government own both land and capital • Government controls where you work and how much you earn • Wages • Farmers are told what to plant • Manufacturers told what to make • Self-interest and competition do not exist in CPE

19. Socialism vs. Communism (CPE) • Socialism • Social and political belief that democratic means should be used to distribute wealth • Evenly throughout society • Government owns major industries, as well as utilities • Communism • CPE with all economic and political power in the hands of the central government. • Authoritarian • requires strict obedience to the government. • Usually takes the form of a dictator (Stalin, Castro)

20. 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. National Defense Roads/Highways Education Government Protects Business Patents Property rights Anti-monopoly Just compensation Rise of Mixed Economies

21. Balancing Control and Freedom • Each nation must decide the opportunity costs of pursuing goals: • Army • Unemployment • Public education • Subsidize farms

22. 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?

23. 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 Basic Principles of Free Enterprise

24. 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

25. 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.

26. 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.

27. Public Disclosure Laws Laws that require companies to provide consumers with important information about their products, such as fuel efficiency of automobiles, side-effects 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. The Government’s Role

28. 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

29. 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

30. Promoting Growth and Stability • 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?

31. Tracking Business Cycles • Macroeconomics • is the study of the behavior and decision making of entire economies. • A business cycle • is a period of a macroeconomic expansion followed by a period of contraction. • One measure of a nation’s macroeconomy isgross domestic product (GDP). • GDP is the total value of all final goods and services produced in a particular economy.