1. Free Market Economy
Market is an arrangement that allows buyers and sellers to exchange things

2. Specialization
Specialization is the concentration of the productive efforts of individuals and firms on a limited number of activities.
What are some examples of specialization?

3. Free Market Economy
Free Market Economies are based on voluntary exchanges in markets
Individuals and privately owned business own the factors of production
Individuals and businesses answer the three economic questions

4. Households and Firms
Household: a person or group of people living in the same residence; own factors of production and are consumers
Firm: an organization that uses resources to produce a product, which it then sells.

5. Self Interest Adam Smith-The Wealth of nations
In a free market economy individuals only consider their own personal gain

6. Competition Consumers have an incentive to look for lower prices
Firms want to increase sales and profit
Competition is the struggle among producers for the dollars of consumers
Is competition good for someone looking to purchase a product?

7. The Invisible Hand
Self interest and competition work together to regulate the marketplace
Consumers get products they want at prices that closely reflect the cost of producing them without any central plan or direction
Adam Smith called this the invisible hand

8. Which of the following is not a feature of a market economy?
Individuals and companies have private property
Individuals and companies may trade and sell property
Decisions are made by a central planning authority
Business people may indulge their own self-interest

9. Why are butchers motivated to produce hamburger in a market economy?
Because consumers like hamburger
Because butchers have always produced hamburgers
Because butchers can make money selling hamburgers
Because the government requires a certain amount of hamburger be made

10. The Centrally planned Economy
It is against private property, competition, and consumer choice
A central government makes all the decisions about what to produce, how to produce, and for whom to produce.

11. Socialism
A social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly through a society
Income distribution

12. Communism
A centrally planned economy with all economic and political power resting in the hands of the central government
Can only come from a violent revolution
Authoritarian governments make all decisions for the people of the government

13. Which of the following is an example of an economic decision made in a command economy?
The caste system of India helps determines your occupation
The government of China determines how many shoes will be made
Since more people exercise, more jogging shoes are produced
People do not work on Sunday due to their religious beliefs