1. The Market System

2. Economic Questions
What factors must we consider?

3. Economic System
Method used by society to produce and
distribute goods and services.
1. Must try to satisfy society’s wants and
needs with resources available
2. Must consider the opportunity costs
3. Must decide who gets what

4. Unlimited Limited
Needs and Wants Resources
Scarcity
Choices
WHAT HOW FOR WHOM WHAT
to produce to produce to produce about changes?

5. Economic Goals
1. Efficiency
2. Freedom
3. Security and Predictability
• Safety nets
4. Equity
5. Growth and Innovation

6. What goods and services
should be produced?
• Individuals and privately owned
businesses own the means of production
and choose what to produce
• Requires decentralization (move away
from government control)

7. How should those goods and
services be produced?
• Firms purchase factors of production from
households to produce goods
• Individuals and privately owned
businesses choose how to produce the
goods
• Specialization, use of advanced
technology, and extensive use of capital
goods are important factors

8. Who consumes these
goods and services?
• Voluntary exchanges in market
• Households purchase goods
• Money serves as the medium of exchange

9. The Marketplace
• Factors market (firms purchase goods
from households)
• Product market (households buy goods,
firms make profit)
• Competition (regulatory force) keeps the
market going because of self-interest
(motivating force)= the invisibile hand of
the market
• The Invisible Hand

10. Factor Payments
• The income people receive for supplying
factors of production
– Landowners
– Workers
– Lenders
– Entrepreneurs
• The amount is determined by the value
and goals of each society

11. Pros and Cons
Advantages Disadvantages
• Efficient • Equity hard to
• Economic freedom maintain
• Growth • Security lacking
• Consumer
sovereignty
**No pure free market exists.