 The “Market” › Any arrangement that permits producers (sellers) and consumers (buyers) to exchange goods and services  Characteristics of advanced societies › No one is self-sufficient › Specialization – doing one “special” thing  Easier for people to learn one thing  Work is made more efficient as people get better and better at it  Businesses specialize to use resources more efficiently

 It’s “free” of government interference  Consumer Sovereignty › Individuals decide what they want to buy › Entrepreneurs decide what they will produce  They want to make a profit  They need to make what the people want to buy

 Cycle of wealth (turn to page 31 in your text) › Product market  People (HOUSEHOLDS) pay money to get products (goods and services)  Businesses (FIRMS) sell products (goods and services) to get the people’s money › Factor Market  People (HOUSEHOLDS) sell their resources (land, labor, capital) to get money  Businesses (FIRMS) give money to buy resources (land, labor, capital)

 Economic Philosopher  Trying to make the best system › Productive › Efficient › Fair  Self-interest (greed) drives people and businesses  Work for incentives › Positive = good things/rewards › Negative = bad things/punishments

 Competition drives the system › Businesses compete for the dollars  Lower costs  Improve quality  Offer variety › Customers compete for the dollars  Best jobs  Best bargains  The Invisible Hand drives the system to become most efficient

 Efficient  Economic freedom of choice  Growth and ingenuity  Variety of goods