The Flow of Money & Goods in a Market Economy https://www.youtube.com/watch?v=mN5HPJYJzus& list=PLD5BC727C84E254E5&index=14

3 Economic System & Their Goals  

What is an Economic System? Economic system – how a country decides to create, buy and sell products & resources

The Flow of Goods and Money Markets work well due to circular flow One person’s output is another’s input Flow goes between households and firms Households include a person or group of people Firms are businesses Land, labor and capital are traded for wages Goods are traded to people for money

Two types of markets in model Product market – deals with the goods and services created by firms which are bought by the households Factor market – deals with factors given up by households and paid for with wages or purchases of land Considered factor payments All these things work without intervention because people are worried about their own interest People work for money to buy goods, firms build products to sell them for profit

What is an Economic System? Economic system – how a country decides to create, buy and sell products & resources

Governments Role in the Flow of Goods and Money Government adds a new level to the flow Employs largest number of workers in US Also purchases largest number of goods Government collects taxes to purchase goods Also pays wages to employees for services Also goes to pay for services like Soc. Sec. These referred to as transfer payments Transfers money from one household to another Govt involvement places countries on the Mixed Economy Continuum Explains the level of economic freedom of each country

Governments Role in Mixed Economy Govt needed to set up institutions for markets Legal system, currency, labor laws, etc. Also limits sale of dangerous products Certain foods, drugs, cosmetics, etc. Govt also provides services that would not usually be available due to price Public works – sewers, roads, highways, etc. Each country different in what they provide to society Role of government determines level of freedom

Vocabulary Definitions Circular flow model – a diagram that shows the circular movement of money, resources, and goods and services among households and producers in the economy. Mixed economy- an economic system in which both the government and individuals play important roles in production and consumption; most modern economies are mixed economies.