Free Market Ch. 2.2 By: Austin Ciervo 5 th Period

What is Free Market? A free market is a market where government does not intervene in an attempt to regulate supply, demand, and prices. Rather, these factors are regulated by the free interchange of supply and demand

Household and Firms The Free Market economy is ran by households and firms. A household is a person or a group of people living in the same residence. A firm is an organization that uses resources to produce a product, which it then sells.

Factor Market A factor market is where firms purchase or rent land and hire workers, paying them in wages or salaries for their labor. They also borrow money from households to purchase capital, paying them interest or profits in return. Profit- A financial gain in the difference between the amount earned and the amount spent in buying, operating, or producing a product

Product Market Product market is where the households purchase the products made by firms with the money they receive from firms in the factor market.

Self-interest Self-interest – the buyer and sellers own personal gain. It’s the motivating force in the free market

Competition Households have the incentive to look for lower prices Firms have the incentive seek into making greater profits by increasing sales Incentive – the hope of reward or the fear of punishment that encourages a person to behave in a certain way

Advantages of Free Market Economic efficiency Producers make only what consumers want, when they want it, and generally at prices they are willing to pay Economic freedom Freedom of workers to work where they want, of firms to produce what they want, and of individuals to consume what they want

Advantages of Free Market Economic growth Competition encourages innovation, free market encourages growth. Entrepreneurs are always seeking profitable opportunities, contributing new ideas and innovations Additional goals Producers have incentives to meet consumer desires. In essence, consumers decide what get produced. This is called consumer sovereignty

Video The Free Market

Quiz #1 What is a market where government does not intervene in an attempt to regulate supply, demand, and prices?

Quiz #2 What is the difference between a household and a firm?

Quiz #3 What is a financial gain in the difference between the amount earned and the amount spent in buying, operating, or producing a product?

Quiz #4 What is self interest?

Quiz #5 What are 2 advantages of free market?