Markets make the world go ‘round Ch. 7 - Free Enterprise Markets make the world go ‘round

Review The Basic Economic Questions What will be produced? How will it be produced? Who will get it? How a country answers these questions will determine what type of economic system they have. Traditional, Command, Market, Mixed

The Pillars of Free Enterprise Private Property Incentives to use resources efficiently The Price System Market Competition Entrepreneurship Profit motive

Price System Information Incentives Value customer places on products Opportunity costs of using different resources Measures relative scarcity Incentives Increased prices encourages more production Higher wages (price of hunk of human capital) attracts workers

Market Competition Market for resources Market for products The Regulator Market for resources My hunka human capital is better than yours How much do you want for that hunk of h.c. Market for products I’ll give you $7 for that Creed CD. Anybody want a Big Cherry?

The Circular Flow Model What comes around goes around Market for Products (Goods and Services) Markets for Resources (Hunka, Hunka) Both based on voluntary exchange Roles of Households (you and me) Consumers—the cookie monster syndrome Resource owners– want a hunk?

Adam Smith’s Wealth of Nations "Give me that which I want, and you shall have this which you want..." How can people who pursue their own self-interest through voluntary exchange also promote the best interest of society? Profit is the motivator Entrepreneurs are the risk-takers Competitions is the regulator And the invisible hand goes round and round

Relative Scarcity and Value Which is more valuable? Insulin Diamonds Which is more scarce? Scarcity is relative It all depends on other things

Order these products in terms of relative scarcity A candy bar A yacht A Jeep Cherokee A room at Grand America Lunch at McDonald’s A laptop computer Olympics opening ceremony tickets

Order these resources in terms of relative scarcity Someone who plays basketball like MJ Agricultural land in New York A teacher Agricultural land in Utah Electricity in Utah Electricity in California