1. Is it more efficient to produce 8 million tons of watermelons and 14 million pairs of shoes or 21 million tons of watermelons and no shoes? Explain your answer.

2. Friday, September 8, 2017
Objective:  Students will be able to explain the benefits of the US Free Enterprise System and interpret the circular flow model of economic activity.
Purpose: Knowing how our economic system operates will help each of you perform certain roles effectively and how they impact others.

3. Drawing Production Possibilities Curves
You need to decide on the two goods that you want to compare.
Production Possibilities Frontier: the line that goes from the vertical axis to the horizontal axis is called the
This line shows the most efficient combinations of two goods that a country can produce at any one time.
Law of Increasing Costs: as production shifts from making one good or service to another, more resources are needed to increase production of the second good or service

4. This photograph shows an area of farmland that was converted to housing. The opportunity cost of the housing is the crop that could have been grown on that farmland.

5. Drawing Production Possibilities Curves
Can a country ever move beyond the current PPF curve?

6. Drawing Production Possibilities Curves
YES they can
BUT they have to do one of the following:
Increase their Technology
Add more Resources
Once one of the above actions is done, the country can produce beyond the current PPF curve and move the curve outward

7. New technology, such as these robots, can increase the efficiency of a nation’s production and lead to economic growth.

8. Based on this curve, how would you describe a situation in which Capeland produces 10 million tons of watermelons and 10 million pairs of shoes?

9. By directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it.
After reading the quotation, how does society benefit from economic activity in which people seek their own advantage or benefit?

10. Economic Goals of a Society
Efficiency: using resources in ways that maximize production
Certainty/Predictability
Growth
Equity/Fairness

11. Household income rose between 1976 and 2011 at all five income levels—but not at equal rates. Which income group saw the greatest change?

12. Capitalism
Capitalism: an economic system in which decisions on the three key economic questions are based on voluntary exchange in markets
Also called the free market or free enterprise system
Individuals and privately owned businesses own the factors of production, make what they want, and buy what they want

13. Circular Flow Model
Households: a person or group of people living in the same residence
They provide land, labor, and capital to businesses/firms
Firm: an organization that uses resources to produce a product which it then sells (also called a business)
Factor Markets: markets in which the factors of production are bought and sold
Product Markets: markets in which goods and services are bought and sold

14. Crash Course

15. Warm Up
How does the quest for profits motivate businesses to produce what consumers want?
How does the quest for profits affect how businesses pay their employees?
Are free markets operating in self-interest alone the only thing necessary to a successful, happy society? Explain your answer.

16. The circular flow model shows the interaction between households and firms in a free market. What is the primary item that changes hands in the monetary flow?

17. Characteristics of Free Enterprise
Private Property Rights: the concept that people have the right and privilege of owning and controlling their possessions as they wish
Incentive: an expectation that will encourage people to behave in a certain way (e.g., increase your productivity in hopes of increasing your wages)
Profit: The possibility of making a profit motivates people to improve their economic well-being

18. In a free market, incentives of all sorts influence individuals to act in their own self-interest. Use one of the examples from this diagram to explain how the incentive given leads to the response indicated.

19. Characteristics of Economic Systems
Economic Freedom: the right to make your own economic decisions
Examples: choosing your own career, choosing what to purchase with your money
Competition: the struggle among producers for consumers’ business
competition gives us the best product at the lowest price

20. How Capitalism Works
According to Adam Smith, participants in a free market consider their self-interest (an individual’s own personal gain) before acting
Consumers, pursuing their self-interest, have the incentive to look for lower prices
The firm has the incentive—from more potential sales and profits—to produce more products

21. How Capitalism Works “The Invisible Hand”
Self-interest and competition tend to work together to keep the marketplace fair and its prices responsive
Because of competition and consumer demand, businesses cannot afford to set their prices too high, or else they won’t make a profit

23. Benefits of the Free Enterprise System
Individual Freedom to make economic decisions based on our self-interests
Variety of Goods available to produce and purchase
Efficient response to changing marketplace conditions
Competition leads to innovation and growth

24. The free market system offers many benefits to producers and consumers
The free market system offers many benefits to producers and consumers. Which of the advantages of the free market do you think is most important to producers? Explain your answer.

25. Role of the Government in Capitalism
ensure that producers provide consumers with information that is honest and clear
protect public health, safety, and well-being

26. The role of government in protecting consumers includes regulations directing car companies to provide detailed information about the vehicles they sell.

27. Summary
Think back to Adam Smith’s idea that economic self-interest produces good results for society
How does the quest for profits motivate businesses to produce what consumers want?
How does the quest for profits affect how businesses pay their employees?
Are free markets operating in self-interest alone the only thing necessary to a successful, happy society? Explain your answer.