1. Interdependence of Voluntary Exchange, Circular Flow and Entrepreneurship Key to economic exchange

2. Objectives Examine the interdependence of households and firms – Voluntary Exchange – Circular Flow – Role of entrepreneurs – C2 PO1ab

3. Tchart list Left side= Household production Right side = Household consumption Think broadly – consider “unpaid labor”, – environmental impacts, – 2 nd degree relationships to public goods like roads – Pair and Share

4. Voluntary exchange Mark Wage (W) involving wages (paid for with money from work) Mark Non-Wage (NW) for exchanges that do not directly involve your money (NW) Which of W or NW form the majority? Why?

5. Voluntary Exchange 2 Willing exchange of one valuable commodity for another, with expectation of mutual gain – What is valuable to you? – Foundation of market economies

6. Our Vol. Exchange Student- Non Wage exchange – Time and mental energy, caloric energy traded for – Economic knowledge for current/future use – Goal: Personal Economic advancement/security Teacher- Wage exchange of knowledge/skills – Time and mental energy, caloric energy traded for – Salary, Health and Pension Benefits, Experience – Goal: Family economic advancement/security

7. Obstacles to Voluntary Exchange Coersion by one party Inequitable gains by one party Outside interference Inability to complete exchange due to situational changes

8. Circular Flow Pick on item from your list Who made it? – Who made the component parts? – Where did they get the raw materials? – Did the government take any taxes, fees?

9. Circular Flow 2 Continuous cycle of production on consumption between “sectors” and “markets” – Sectors :Household, Business, Government and Foreign – Markets :Product, Resource and Financial

10. My Circular Flow I buy electricity (household product) SRP (business) makes money (capital resource), pays property taxes (gov.) and buys machinery (domestic capital sector) with borrowed money (foreign capital market) from Japan School District gets property tax money (gov) School hires me as a teacher, pays me with tax money. I buy electricity.

11. Product Market and Factor Market Product Market includes final goods/services produced by firms – Firms include any profit making business from single owner to multinational corporation Factor market includes all FOP’s necessary to produce those final goods/services

12. Circular Flow Costs/Benefits Costs – Reliance on others – Situational Inefficient – Requires complex societal infrastructure Benefits – Economies of scale – Specialization efficiencies – Effective at reducing redundancies

13. Entrepreneurs What makes a good business owner? – Why do they enter business?

14. Entrepreneurship A special sort of human effort that takes on the risk of bringing labor, capital, and land together and organizing production in order to make a profit

15. Pick an Item Pick one consumer item from your t chart Briefly explain the voluntary exchange that made it yours (what work went into buying) Where did that money go? What is necessary to maintain supplies of that item? Who is making sure that happens?

16. Costs/Benefits of Entrepreneurship Costs – Substantial Risk of Failure – Start Up Investment of Research and Design – Liability if Product is defective/dangerous Benefits – Substantial Chance of Large Profits – Operational Independence – Large/Diverse Social Network

17. TakeAWAY Economics is a complex interaction of resources and the market Like an engine, many complex systems interact to get you where you want to go Voluntary exchange is the gas, circular flow is the transmission and Entrepreneurs are the steering