Short Quiz1. Under a command economy, who decides what is

produced and production levels?A. Corporations B. Companies C. Government planners D. Consumers

2. What wasn’t considered when a person stood inline for 3 hours to get a free hamburger?

A. Opportunity Cost B. price of hamburgersC. Price of alternative goods D. Trade offs other consumers are making

3. What is your incentive for improving your GPA?A. Opportunity Cost B. lower student loan interest rateC. Price of college tuition D. scholarships

4. Economists “think at the margin”, explain what that means using at least one example

What economic opportunities do you see in this picture?

May 2008

How does the seal show economics?

New Mexico: The Hug State

What is a model?

Circular Flow Model

Households Firms

Product Market (output)

Factor Market (input)

Money $$$

Goods/Services

labor

Wages $$

Capital $$

Interconnectivity

Rent $$ Dividends $$

land

In ReviewIn our system:

• Firms need households

• Households need firms

• They are interconnected

• Transactions cost

Principles 6 & 7

Profit Motive• Buy low and sell higher

• People want profits

• Consumer Sovereignty

• Adam Smith “invisible hand”

• Voluntary trade increases wealth

What keeps our economy moving?

Factors of Production• Items we need to be in business

• 3 categories + 4th idea

• “inputs”

Land• Any natural resource

– Copper mine example

Labor• People working

• Wages $

• Benefits

Subset of Labor: Human Capital• Skills, experience, education a person has• It’s the reason doctors are paid more than sandwich

artists

Capital• Goods used to create other goods/services

• Usually the largest cost for entrepreneurs

• Explanation for “Capitalism”

Let’s build a new Circle K!

• Land

• Labor

• Capital

New Ideas!Real job creation

• Entrepreneur – French word

• Person who takes a risk combines land, labor and capital to start a new business– OR comes up with a new idea

within a business

Empresario

“Free Market” Economic System• Laissez Faire – French for “leave alone”

• Guided by “invisible hand”

• Stossel clip