HOUSEHOLDS, FIRMS, AND MARKETS A household consists of an individual or a group of people who live together and share income, such as you and your family. 1. Households purchase goods and services from businesses. 2. Households provide land, labor, capital, and entrepreneurship (resources) from which goods and services are produced. This is a good place to mention that households DEMAND goods and services and SUPPLY land, labor and capital.

HOUSEHOLDS, FIRMS, AND MARKETS A firm is a privately owned organization that produces goods or services and sells them to others. This is a good place to mention that firms DEMAND land, labor and capital and SUPPLY goods and services.

THE SIMPLE CIRCULAR FLOW Have the students identify the difference between the clockwise flow of money and the counter-clockwise flow of goods.

THE SIMPLE CIRCULAR FLOW Product markets are where goods and services are exchanged for money. Again focus on the counter clockwise and clockwise flow. Be sure to address the product market function of goods and services exchanged for money payments to firms. The Factor market is where the resources of land, labor, capital and entrepreneurship are exchanged for money payment to households. Factor markets are where resources are exchanged for money.

GOVERNMENT’S ROLE IN A MARKET ECONOMY 1. A government can establish and enforce rules that improve market performance. 2. A government can provide important goods and services that private individuals tend not to purchase. 3. A government can help improve economic security, equity, and sustainability. Recall for students that the term “government” could mean federal, state or local governments. Discussion: What are some goods and services that the government provides? Try to encourage goods and services from each of of the categories on the slide Why does government provide these goods and services? Why are they not provided by private sector firms?

GOVERNMENT IN THE CIRCULAR FLOW A public good is a good or service that can be consumed by many people at once and that other people can’t be prevented from using. Focus on the flow of money to the government. Ask the students what taxes they pay and which government agency collects and spends the revenue. Transfer payments are expenditures for which the government receives no good, service, or resource in return.

Government in the Circular Flow Discuss with the students their view of the role of government within the economy. Make sure to point out the clockwise and counter-clockwise flow in the model

INTERNATIONAL PERSPECTIVES Countries have to decide if they want a strong safety net or a weak one. More public goods and transfer payments tend to increase the tax rate. Discussion: Recall the examples from the text, p. 70. Discuss how Sweden, Denmark and China are examples of a different type of market economy than the US. Ask the students what social safety programs they are aware of. Are they worthwhile? What makes a government program valuable?