1. Warmup Respond to the following statement with your opinion & explanation (1/2 page min.) Compare and contrast (explain the major differences between) Communism and Capitalism. Also state which economic system you would prefer to live under and explain why.

2. Economics Unit 2: Competitive Markets Lesson 7: Market Economy of U.S.

3. Characteristics of Markets The market, because it depends on individual choices & incentives, is the most efficient allocation of our scarce resources. Exchange that takes place is voluntary – voluntary trade makes both parties better off Resources flow towards those that place highest value on them Markets facilitate trade and trade creates value

4. Self-interested Behavior Self-interested behavior – consumers attempt to max. their own utility & producers attempt to max. profits Does not necessarily mean selfish behavior Buy something cheap now, or more expensive later? Businesses will try to maximize the return on their effort and their investments

5. Competition Competition – effort of two or more people, acting independently, to get the business of others by offering the best deal This protects the consumer from deception on the part of the seller Competition works to keep individuals from promoting their own self-interest at expense of others. Ex. The first video game systems

6. Private Property Rights Property includes land, buildings, goods, businesses, person’s labor, & ideas What would life be like if govt. could tell you how to use your labor, your ideas, or your possessions? Does a business own resources? Sometimes, sometimes not. Ex. Publicly owned company like Apple

7. Consumer Sovereignty In a market economy – the consumer is king – customer is always right Consumers dominate production because they are on the demand side of the market– they are who decides to buy or not to buy By spending money, they send a vote to producers Through choice – they steer the choice of what resources to use to make the desired goods & services Producers must adjust to consumers wants

8. Markets & Voluntary Exchange Market systems exist to a large extent because they promote voluntary exchange Households trade w/firms – both better off 3 ways markets maximize utility 1Trade moves goods & services to people who value them most 2Voluntary exchange encourage individuals to cooperate to produce more goods 3Voluntary trade ensures more efficient & less costly production

9. Specialization Specialization – situation in which people concentrate their efforts in the areas where they have an advantage Market economies encourage people & firms to use their time and talents to specialize Ex. Medical student – Doctor, Car company – builds cars Also applies to trade between countries Ex. U.S. grows wheat – Costa Rica - pineapples

10. Role of Government U.S. Market Economy govt. has a limited role National defense, enforcing laws, upholding justice are all important However govt. also builds infrastructure (roads, bridges, ect.), runs schools, redistributes income (social programs – bridge cards, welfare, Social Security, ect.)