1. Markets make the world go ‘round
Ch. 7 - Free Enterprise
Markets make the world go ‘round

2. Review The Basic Economic Questions
What will be produced?
How will it be produced?
Who will get it?
How a country answers these questions will determine what type of economic system they have.
Traditional, Command, Market, Mixed

3. The Pillars of Free Enterprise
Private Property
Incentives to use resources efficiently
The Price System
Market Competition
Entrepreneurship
Profit motive

4. Price System Information Incentives Value customer places on products
Opportunity costs of using different resources
Measures relative scarcity
Incentives
Increased prices encourages more production
Higher wages (price of hunk of human capital) attracts workers

5. Market Competition Market for resources Market for products
The Regulator
Market for resources
My hunka human capital is better than yours
How much do you want for that hunk of h.c.
Market for products
I’ll give you $7 for that Creed CD.
Anybody want a Big Cherry?

6. The Circular Flow Model
What comes around goes around
Market for Products (Goods and Services)
Markets for Resources (Hunka, Hunka)
Both based on voluntary exchange
Roles of Households (you and me)
Consumers—the cookie monster syndrome
Resource owners– want a hunk?

7. Adam Smith’s Wealth of Nations
"Give me that which I want, and you shall have this which you want..."
How can people who pursue their own self-interest through voluntary exchange also promote the best interest of society?
Profit is the motivator
Entrepreneurs are the risk-takers
Competitions is the regulator
And the invisible hand goes round and round

8. Relative Scarcity and Value
Which is more valuable?
Insulin
Diamonds
Which is more scarce?
Scarcity is relative
It all depends on other things

9. Order these products in terms of relative scarcity
A candy bar
A yacht
A Jeep Cherokee
A room at Grand America
Lunch at McDonald’s
A laptop computer
Olympics opening ceremony tickets

10. Order these resources in terms of relative scarcity
Someone who plays basketball like MJ
Agricultural land in New York
A teacher
Agricultural land in Utah
Electricity in Utah
Electricity in California