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The Free Market.  What is a Market?  Market - an arrangement that allows buyers and sellers to exchange things.  What is a Market?  Market - an arrangement.

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Presentation on theme: "The Free Market.  What is a Market?  Market - an arrangement that allows buyers and sellers to exchange things.  What is a Market?  Market - an arrangement."— Presentation transcript:

1 The Free Market

2  What is a Market?  Market - an arrangement that allows buyers and sellers to exchange things.  What is a Market?  Market - an arrangement that allows buyers and sellers to exchange things.

3 Why Markets Exist  No one is self-sufficient  Specialization - the concentration of the productive efforts of individuals and firms on a limited number of activities.  Leads to efficient use of resources.  It’s easier to learn one or a few tasks well.  No one is self-sufficient  Specialization - the concentration of the productive efforts of individuals and firms on a limited number of activities.  Leads to efficient use of resources.  It’s easier to learn one or a few tasks well.

4 Why Markets Exist  Buying and Selling  We need markets to sell what we have and buy what we need.  If everyone was self-sufficient there would be no need for markets.  Buying and Selling  We need markets to sell what we have and buy what we need.  If everyone was self-sufficient there would be no need for markets.

5 Free Market Economies  Individuals ask the three key economic questions. What, how, and who?  Individuals ask the three key economic questions. What, how, and who?

6 Free Market Economies  Players in a free market economy:  Household - a person or group of people living the same residence  Firm (or business) - organization that uses resources to produce a product, which it then sells.  Transforms “inputs” into “outputs”  Players in a free market economy:  Household - a person or group of people living the same residence  Firm (or business) - organization that uses resources to produce a product, which it then sells.  Transforms “inputs” into “outputs”

7 Free Market Economies  Factor Market - firms purchase factors of production from households - land, labor, and capital.  Profit - financial gain made in a transaction.  Factor Market - firms purchase factors of production from households - land, labor, and capital.  Profit - financial gain made in a transaction.

8 Free Market Economies  Product Market -goods and services produced by firms are purchased by households.

9 The Self-Regulating Market  Adam Smith - The Wealth of Nations, 1776  Buyers and sellers seek their own self- interest - personal gain.  Consumers have the incentive to look for lower prices. People respond predictably to incentives.  Competition is natural as consumers (households) seek lower prices and firms seek more profit.  The invisible hand of the marketplace.  Adam Smith - The Wealth of Nations, 1776  Buyers and sellers seek their own self- interest - personal gain.  Consumers have the incentive to look for lower prices. People respond predictably to incentives.  Competition is natural as consumers (households) seek lower prices and firms seek more profit.  The invisible hand of the marketplace.

10 How a Free Market System Meets Economic Goals:  Economic Efficiency  Economic Freedom  Economic Growth  Consumer Sovereignty  Economic Efficiency  Economic Freedom  Economic Growth  Consumer Sovereignty


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