1. CHAPTER 2 –
SECTIONS 2 & 3
T H E F R E E MA R K E T V S .
C E N T R A L L Y P L A N N E D E C O N O MI E S
2. • Market – A market is an arrangement that allows
buyers and sellers to exchange things.
• Why Markets Exist:
• Specialization – focus on doing one thing well
• Buying & Selling – We need markets to sell what we have
and to buy what we want.
3. FREE MARKET ECONOMY
• Individuals and privately owned businesses own the
factors of production.
• Individuals answer the 3 economic Q’s.
Households pay
for G & S
Firms supply
G & S
Circular Flow
Model of a
Free Market
Households Firms
Households supply
firms with land, labor
& capital
Firms pay for land, labor,
and capital
4. • Respond to this quote:
“It is not from the benevolence of the butcher,
the brewer, or the baker that we expect our dinner,
but from their regard to their own interest.”
- Adam Smith, The Wealth of Nations
5. ADAM SMITH
• The Wealth of Nations
• The Invisible Hand
• Laissez-Faire (let them do as they please)
6. CENTRALLY PLANNED ECONOMIES
• The central government answers all 3 of the
economic Questions.
• Government controls:
• Factor Resources & production
• Agriculture, Industry, Jobs
7. SOCIALISM VS. COMMUNISM
• Socialism – a social & political philosophy
• Real equity can only exist when political equity is coupled
with economic equity.
• Use democratic means to distribute wealth
• Gov usually owns major industries, high taxes, free public
services
• Communism – all economic & political power rests
in the hands of the central government.
• Unlike socialists, communists believe it can only come after
a violent revolution.
• Socialist societies allow for democracy, communist societies
are authoritarian.
8. KARL MARX
• The Communist Manifesto
• Sited the class struggle “Bourgeois vs. Proletarians”
created by capitalism.
• Called for the sharing of all resources and land and
evolving into a “classless” socialist society.
9. YOUR ASSIGNMENT
• Compare and contrast Hong Kong and North
Korea.
• Use compare and contrast language and give
supporting examples.
• Use statistics about unemployment, political
systems, GDP, strength of their currency, and social
climate.
