Transcript CH.2 SEC.2 - Coach Stoney's Economics Class Website

CHAPTER 2
SECTION 2
•Market-an arrangement that
allows buyers and sellers to
exchange things.
•Markets exist because no one is
self-sufficient.
•Markets allow us to exchange
things we have for things that we
want.
House Holds And Firms
• The players in free market economy
are house holds and firms.
• Household is a person or group living
in the same residence.
• Households can own the factors of
production , land, labor, and capital.
Factor Market
• A Firm is an organization that
uses resources to produce a
product
• Firms purchase factors of
production from house holds.
This exchange is known as
factor market.
•Factor payments- The income
people receive for supplying
factors of production, such as
land, labor, or capital.
•Examples
•Being paid for labor costs
•Rent for a factory building
Product Market
• Profit is a financial gain made in
transaction.
• Product market is the market in
which goods are purchased by
households.
• The market economy is distinguished by
individual choice to determine answers
to the 3 key economic questions.
• Market economies are also called free
markets.
• Capitalism is a term often used to
describe a free market. This means that
decisions are made in the marketplace
and not through central planning.
Adam Smith
• Adam Smith was one of the
first people to offer an
explanation of how a market
economy should work.
• He was a Scottish Philosopher
who was greatly respected by
his students and fellow
professors.
Smiths Theory
• Smith identified land, labor, and
capital as the factors of
production that generate a
nations wealth.
• Invisible hand- term
economists use to describe the
self-regulating nature of the
marketplace.
• Consumer Sovereignty- the
power of consumers to decide
what gets produced.
•Incentive- an expectation
that encourages people to
behave in a certain way.
•Competition- the struggle
among producers for the
dollars of consumers
• Self-Interest- one’s own
personal gain in the economy
• Advantages of a free market.
• Economic efficiency- Producers
make only what consumers
want.
• Economic GrowthEntrepreneurs are always
seeking profitable
opportunities.
• Economic Freedom- Producers
have the choice to make what
they want, and consumers to
purchase what they want.
• What is a Disadvantage of a
Free Market Economy?
• The biggest disadvantage of a
market economy is that there
are big gaps between the rich
and poor
• Specialization- the concentration
of the productive efforts of
individuals and firms on a
limited number of activities.
• A free market is a self-regulating
economic system directed by
individuals acting in their own
self-interest.
Ch2. Sec.2
Questions
Question #1
•How does
specialization
make us efficient?
Question #2
•What is Profit?
Question #3
•What is the difference
between the factor
market and the
product market?
Question #4
• What are the roles of
households and firms in
a market economy?
Question #5
•How does competition
among firms benefit
consumers?
Question # 6
•Explain what Adam
Smith meant by “the
invisible hand of
market place”.
Question #7
•What is the connection
between incentives and
consumer sovereignty in
a free market.
Question # 8
•Why is economic
equality difficult to
achieve in a free
market economy?
Question # 9
•What is Product
Market?
Question # 10
•Competition and what
else helps to keep the
market place
functioning?