Are human beings selfish? Or are they caring? What do you think? Explain. 1 Open assignment # 5 for a stamp. What will we learn today? What will we learn today? Standard The role of market economy in political and personal liberty. Standard Explain the roles of property rights, competition, and profit in a market economy. Week: Economic Systems Day 1 Directions: On Day 4 of your Bellwork, answer the following question. You need to write a one paragraph response, so fill out all of Day 4. There should be little to no talking during the Bellwork.

Friends: The One Where Phoebe Hates PBS 3:20 – 5:20 9:32 – 10:02 15:20 – 15:50 18:55 – 20:09 2

1. What goods or services should be produced? How much resources should we devote to national defense? Education? Public health? 2. How should they be produced? Should we have coal/oil/nuclear power? Should teachers have 20 kids in a room or 50? 3. Who consumes the goods and services? How will society distribute income? Who will drive the Lexus? Who will take the bus? 4

Traditional economy: Relies on habit or custom. Little innovation. Similar to family system. Boys follow dad’s footsteps, girls follow mom. Examples: Hunting, farming. Low standard of living. Market economy: Decisions made my individuals based on exchange, trade. (aka free markets, capitalism) Centrally planned economy: (aka command economy) Government decides everything. Example: communism. Mixed economy: Market-based economy where government plays a limited role. This is the United States. 5

Market: An arrangement that allows buyers and sellers to exchange things. Markets exist because we can’t all produce everything we need for ourselves. Specialization: The concentration of the productive efforts of individuals and firms on a limited number of activities. Example: a mechanic specialized in fixing cars. Or: assembly line 6

Imagine a life without specialization. Cast Away: 1:01 7

Household: A person or group of people living in the same residence. Firm: Business; an organization that uses resources to produce a product Factor market: Market in which firms purchase the factors of production (land, labor, capital) from households 8

Profit: The financial gain made in a transaction Product market: The market in which household purchase the goods and services that firms produce. Adam Smith: Wrote The Wealth of Nations in Father of economics. Said people are selfish, but that is okay because it works. Said gov. should stay out of economy (laissez faire = hands off) 9

Self-interest: One’s own personal gain Incentive: The hope of reward or the fear of punishment that encourages people to act in a certain way. Example: recycling. Buy things on sale. Employee of the month. Sports championships. 10

Incentives: What isn’t worth your time and effort may be worth it for someone else. The Terminal: 28:40 11

Competition: The struggle among producers for the dollars of consumers. This helps control firm’s selfishness Example: PS3 lowers price, Xbox does the same within a week. “The invisible hand”: Term economists use to describe the self-regulating nature of the market place. Plain English: even though everyone is selfish and interested in their own good, things are not chaotic. Things are balanced. 12

Why is the free market system good? 1) It works. Producers make what consumers want, when they want it. Prices are pretty good. 2) Freedom. Work where you want, buy what you want, make what you want. 3) Growth is encouraged because innovation is encouraged. 4) Wide variety of things get made because consumers decide what gets made. Consumer sovereignty: The power of consumers to decide what gets produced. 13

Create a brochure that illustrates and defines The Free Market Economy (left) and the Centrally Planned Economy (right). Free Market Economy – pg. 28 – 32 Write terms and definitions (pg. 28 – 32) on the inside flaps. Why is this economy good? What isn’t good about this economy? The Centrally Planned Economy – pg Write terms and definitions (pg. 34 – 38) on the inside flaps. Why is this economy good? What isn’t good about this economy? IMPORTANT: Put everything in your own words! 14