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Published byRussell Day Modified over 9 years ago
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The Free Market
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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.
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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.
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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.
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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?
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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”
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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.
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Free Market Economies Product Market -goods and services produced by firms are purchased by households.
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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.
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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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