1. Basic Economic Structures EPF1f. Adam Smith & market economy

2. What were some of Adam Smith’s economic theories? Essential question: 2

3. Adam smith believed: That people, acting in their own self-interest, would work hard and product what consumers want as if directed by an invisible hand 3

4. Smith argued for: Trade, saying it opened new markets where surplus goods could be sold and allowed for cheaper goods to be imported 4

5. Smith also believed that: Competition among businesses would keep prices in check 5

6. Smith believed: There was a limited but important role for govt to do things such as: Enforce contracts Grant patents and copyrights Provide public works such as roads 6

7. Smith observed: That specialization and division of labor in a pin factory allowed workers to produce many times more pins than if each worker had been working alone 7

8. What are the characteristics of a market economy, and why is each important? Essential question: 8

9. Market economies are characterized by: - private ownership of resources - prices determined in markets - competition among businesses - consumer sovereignty - profit motive - limited government 9

10. Private ownership of resources Which provides incentives for the owners of resources to weigh the value of present uses against the value of conserving the resources for future use 10

11. Competition among businesses Tends to lower prices and raise quality 11

12. Prices determined in markets Through the interaction of supply and demand 12

13. Consumer sovereignty The concept that consumers’ “dollar votes” tell businesses what to produce 13

14. Profit motive An incentive for businesses to product what consumers demand and to produce those goods and services efficiently – keeping costs down – in hope of earning greater profit 14

15. Limited government That acts as a referee protecting: Consumers Workers The environment And competition in the marketplace 15