1. Market Economies Characteristics and Flaws

2. Why do people trade?

3. Market Economy Characteristics

4. Invisible Hand
Unobservable force in markets that drive supply and demand to reach their equilibrium
Free (non-regulated) exchanges in the system send signals about which goods and services are most valuable in the system
Producers, consumers, planners, marketers all look to these signals about what is an appropriate market plan

5. Profit Motive & Incentives
Firms working to increase their profit
What is most optimal for the company to increase wealth
Incentives
Drive markets to equilibrium
Dependent on consumer AND producer incentives

6. Voluntary Exchange & Self Interest
The voluntary act of buyer and seller going through a transaction
Both parties benefit more from after the transaction than before.
This pushes the market closer to equilibrium
Self interest
Individuals largely own most the labor, land, capital, and resources of a market
Using voluntary actions (self-interest) to drive the marketplace
The government will play a small role using self-interest and competition to drive the market
Self interest and the “invisible hand” bring the market to equilibrium

7. Flaws of market economies

8. Public vs Private Goods
Goods and services that can only be consumed by one individual at a time
Often have competition for the consumption of that good
The use of this good or service prevents someone else from consuming this good
Usually has a cost or price (never free)
Public goods:
Goods and services that can be consumed jointly at no additional cost
An individual consuming this good does not prevent another from consuming that same good
Often considered free (paid for by tax dollars)

9. Why does Lakewood have more trash on the floor than in your house?
Why do the Chromes always have keys missing?

10. Tragedy of the Commons One of the biggest economic issues
Individuals always doing what works for the individual destroys or depletes the resources
Self interests are contrary with the common good
What are things that are shared currently (in the world)?
Oceans
Hunting and fishing
“Free-rider” problem
Those taking advantage of a common resource with out paying for it
Often in regards to taxes (or the lack of paying for them)
Tragedy of the Bunnies

11. What about peeing in the pool?

12. Property rights Theoretical and legal ownership of specific properties
Property rights: the right to accumulate, hold, rent or sell their property
Ability to exclude others from the use or benefits of a property
Can lessen the Tragedy of the Commons theory
If property rights are clear and secure, those who own the land have more incentives to maintain the land
However, its lessens the incentive to maintain tributary (or environmental) aspects of the land

13. Externalities
Why should you always help put out your neighbor’s house fire?
Why is it in Ms. Lukas’ interest to keep paying her taxes for YOU to go to school?
Why should you clean up after your puppy at the dog park?

14. Externalities A side effect of an economic decision
Outcomes affect other people than those directly involved
The Third Party
Can be positive or negative
Often affects our senses rather than our pockets

15. Should the government provide public services
Should the government provide public services? Does the government do a good job at providing public services? What are some problems with public service?

16. Public Services AKA Public Sector
Organization services run by federal or local governments
Usually non-profit organizations
Often run by the government
Flaw: public need can mean government incentive

17. Advantages and Flaws Advantages: Disadvantages:
Public controlled services have low profit margins (meaning it doesn’t generate money)
Costs are covered (usually) by the taxpayers
Helps avoid debt
Government controlled means its cannot be used inappropriately
No (extra) charges to the public for their use
Disadvantages:
Since funding comes from Taxpayers, it isn’t actually the best value for your money
Lower qualities
Less competition (which drives quality
Take away from private sector growth
Some organizations are very expensive to run and maintain

18. Private Sector For- profit organizations
Businesses owned and run by private individuals
Small businesses and large multinational businesses
Foundation for growth in a market economy
Governments will help promote private firms

19. Advantages and Flaws Advantages: Disadvantages:
Can often be cheaper to run and operate than public sector
More control over wages and costing
Very competitive
Usually better pay and lower costs
Invests in the future
Disadvantages:
Business run the risk of failure
Might be supported by taxpayers
Your banks during 2008 were at risk of failing, government “bailout” or subsidies were funded by taxpayers
Too much debt
Prices are at the whim of the company
Overpaying for goods and services

21. Government Regulation
Well intentioned rule to even out firms in the market
Additional roles: ensure safety, corruption, survivability
In the form of laws and taxes/fees
Used to help the firm or the consumer depending on the need

22. Government Regulation
Government obligation to have citizens pay for their use
“Nothing is ever free”
Taxes
Taxes paid do not always reflection the quantity of goods and services consumed
Free-loaders
Can’t protect public goods from those who don’t pay
Even in places were people pay, the government heavily subsidies
Post stamps or park entrance fees

23. Government Regulation

24. What assets might the top one percent of people in the U.S. have?
Income Inequality
What are some assets (things of value) that lower-income people might have?
What are some assets (things of value) that the “middle class” might have?
What are some assets (things of value) that upper income people might have?
What assets might the top one percent of people in the U.S. have?

25. Income Inequality Is there a different between wealth and income?
Your paycheck or wages
Can be government benefit checks or profits from investments
Wealth
What you own minus what you owe
What you have in the bank and assets that you own
If you had an $5,000 emergency tomorrow, could you quickly get the money?
*Currently 18% have no assets
Meaning they owe more than they own (DEBT!)

26. Income Inequality Should we care about this issue?
Income distributed in an unequal manner
Those born rich, are more likely to stay rich
While all people have the ability to succeed, the misallocation of resources prevents mobility
Divides between “rich” and “poor” prevent economic growth
Should we care about this issue?
Is this a natural side-effect of market economies?
How does minimum wage effect income inequalities?

27. Income Inequality