1.Pick a partner and make 15 flash cards. 2.Look up all 15 key terms, using the text. 3.One side write the word, on the other side write the definition  Make sure they are completed and completed and you have looked you have looked them over. them over.  You will use them for Wednesday's “Word Up” challenge for Wednesday's “Word Up” challenge

K EY T ERMS : marketincentivefirmindustry circular flow model self-interest Factor payments traditional economy command economy market economy mixed economy free-enterprisecapitalismcompetition laissez faire

- 3 Economic Questions -

What to produce … Societies decide what is most important to satisfy its wants and needs. Societies decide what is most important to satisfy its wants and needs. What resources (land, labor, & capital) are available? What resources (land, labor, & capital) are available? What are the opportunity costs of those decisions? What are the opportunity costs of those decisions?

How to produce … How do we use our available resources? How do we use our available resources? Is there a more efficient way to use them? Is there a more efficient way to use them? What combinations of land, labor & capital are needed to produce? What combinations of land, labor & capital are needed to produce? How are worth & price of resources How are worth & price of resources decided? decided? Apple pie Apple juice There must be a more efficient way to get these apples

For whom to produce …  What is the market for it?  Who will use the product?  Who has the greatest need?  Who can afford the products? I don’t think this is going the right way

Economic Systems There are 4 types of systems that address the 3 economic questions about production in different ways…. Traditional economy Traditional economy Command economy Command economy Market economy Market economy Mixed economy Mixed economy

 Answers the economic questions based on cultural traditions, habits, or rituals  Relatively small communities  Generally agricultural economies

 Strong families, religious beliefs  Low standard of living  Little room for innovation Ex: Amish or tribal communities

 Relies on government or central planning committee to answer economic questions.  Individuals have little or no say in economic planning and freedom of choice.  The government has control or owns resources.  Also known as Planned, Communism... Ex: Cuba, North Korea, former Soviet Union

 Introduced his form of socialism called Communism.  Russia will be one of the first to adopt Marx’s ideals. Marx’s ideals.  Karl Marx ( ) had said that industrialisation had made the middle classes rich and powerful but had made the workers slaves.

Market Economy  Individuals answer economic questions.  Individuals & businesses use the market to exchange goods & money money.  Individuals & private businesses own & control resources. Ex: United States, Canada, Hong Kong, England Hong Kong, England  Also called free- enterprise or capitalism

Economic Systems There are 4 types of systems that address the 3 economic questions about production in different ways…. Traditional economy Traditional economy Command economy Command economy Market economy Market economy Mixed economy Mixed economy

HOUSEHOLDS  OWNERS OF LAND, LABOR, & CAPITAL/MONEY  BUYERS OF PRODUCTS & RESOURCES. RESOURCES. FIRMS/BUSINESS FIRMS/BUSINESS  BUYERS OF RESOURCES.  PRODUCERS OF GOODS & SERVICES. SERVICES. The Circular Flow Model (INDUSTRIES are A NUMBER OF FIRMS THAT DO THE SAME THING) Can we afford them all

HOUSEHOLDS USE RESOURCES TO MAKE PRODUCTS &/OR PROVIDE SERVICES FIRMS SELL RESOURCES TO FIRMS PROVIDE GOODS/ SERVICES TO HOUSEHOLDS Circular Flow for Resources

HOUSEHOLDS FIRMS PAY INCOME TO HOUSEHOLDS FOR RESOURCES BUY GOODS & SERVICES with MONEY Circular Flow for the money

Market Economy  Specialization leads to economic efficiency  More innovative & higher technology  The market is driven by self-interest.

Market Economy Strong sense of competition- rivalry between companies. Strong sense of competition- rivalry between companies. Incentives encourage individuals & businesses to behave in a certain way. Incentives encourage individuals & businesses to behave in a certain way. Businesses are motivated by profits/financial gain. Businesses are motivated by profits/financial gain. $1.50 $1.25

Adam Smith A Scottish economist in the 1700s. A Scottish economist in the 1700s. Wealth of Nations - written in 1776 describes how a Market system can flourish. Wealth of Nations - written in 1776 describes how a Market system can flourish. Called for economic laissez faire- restricted government involvement. Called for economic laissez faire- restricted government involvement. The Invisible Hand - Self-interest can drive the market, ultimately society benefits. The Invisible Hand - Self-interest can drive the market, ultimately society benefits. ( Hands Off or or Let them do)

Mixed Economy  Combines the elements of Traditional, Command, and Market economies.  The government has varying degrees of involvement: - regulates business - provides a safety net for those in need  All economies are actually mixed: Most tend to lean heavy towards one system.

JOHN NASH: JOHN NASH: modern day mathematician ~ won the Nobel Prize in 1994 ~ subject of A Beautiful Mind  Wrote the “Nash Equilibrium” of “Game Theory”  Smith’s Invisible Hand theory was incomplete.  In an economy, we practice Game Theory: “The Science of Strategy” individuals will plan & act based on what we believe other people will do.  The “Nash Equilibrium” states: individuals will act for their own self-interest & for the benefit of the group.  The outcome may not be the “best”, but you will be able to “stay in the game”.

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