1. The Flow of Money & Goods in a Market Economy
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2. 3 Economic System & Their Goals

3. What is an Economic System?
Economic system – how a country decides to create, buy and sell products & resources

4. The Flow of Goods and Money
Markets work well due to circular flow
One person’s output is another’s input
Flow goes between households and firms
Households include a person or group of people
Firms are businesses
Land, labor and capital are traded for wages
Goods are traded to people for money

5. Two types of markets in model
Product market – deals with the goods and services created by firms which are bought by the households
Factor market – deals with factors given up by households and paid for with wages or purchases of land
Considered factor payments
All these things work without intervention because people are worried about their own interest
People work for money to buy goods, firms build products to sell them for profit

6. What is an Economic System?
Economic system – how a country decides to create, buy and sell products & resources

7. Governments Role in the Flow of Goods and Money
Government adds a new level to the flow
Employs largest number of workers in US
Also purchases largest number of goods
Government collects taxes to purchase goods
Also pays wages to employees for services
Also goes to pay for services like Soc. Sec.
These referred to as transfer payments
Transfers money from one household to another
Govt involvement places countries on the Mixed Economy Continuum
Explains the level of economic freedom of each country

8. Governments Role in Mixed Economy
Govt needed to set up institutions for markets
Legal system, currency, labor laws, etc.
Also limits sale of dangerous products
Certain foods, drugs, cosmetics, etc.
Govt also provides services that would not usually be available due to price
Public works – sewers, roads, highways, etc.
Each country different in what they provide to society
Role of government determines level of freedom

9. Vocabulary Definitions
Circular flow model – a diagram that shows the circular movement of money, resources, and goods and services among households and producers in the economy. Mixed economy- an economic system in which both the government and individuals play important roles in production and consumption; most modern economies are mixed economies.