Free Market Economy Market is an arrangement that allows buyers and sellers to exchange things

Specialization Specialization is the concentration of the productive efforts of individuals and firms on a limited number of activities. What are some examples of specialization?

Free Market Economy Free Market Economies are based on voluntary exchanges in markets Individuals and privately owned business own the factors of production Individuals and businesses answer the three economic questions

Households and Firms Household: a person or group of people living in the same residence; own factors of production and are consumers Firm: an organization that uses resources to produce a product, which it then sells.

Self Interest Adam Smith-The Wealth of nations In a free market economy individuals only consider their own personal gain

Competition Consumers have an incentive to look for lower prices Firms want to increase sales and profit Competition is the struggle among producers for the dollars of consumers Is competition good for someone looking to purchase a product?

The Invisible Hand Self interest and competition work together to regulate the marketplace Consumers get products they want at prices that closely reflect the cost of producing them without any central plan or direction Adam Smith called this the invisible hand

Which of the following is not a feature of a market economy? Individuals and companies have private property Individuals and companies may trade and sell property Decisions are made by a central planning authority Business people may indulge their own self-interest

Why are butchers motivated to produce hamburger in a market economy? Because consumers like hamburger Because butchers have always produced hamburgers Because butchers can make money selling hamburgers Because the government requires a certain amount of hamburger be made

The Centrally planned Economy It is against private property, competition, and consumer choice A central government makes all the decisions about what to produce, how to produce, and for whom to produce.

Socialism A social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly through a society Income distribution

Communism A centrally planned economy with all economic and political power resting in the hands of the central government Can only come from a violent revolution Authoritarian governments make all decisions for the people of the government

Which of the following is an example of an economic decision made in a command economy? The caste system of India helps determines your occupation The government of China determines how many shoes will be made Since more people exercise, more jogging shoes are produced People do not work on Sunday due to their religious beliefs