the free market. what is a market? market - an arrangement that allows buyers and sellers to...
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The Free MarketThe Free Market
The Free MarketThe Free Market
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.
Why Markets ExistWhy 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.
Why Markets ExistWhy 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.
Free Market EconomiesFree Market Economies
Individuals ask the three key economic questions.
What, how, and who?
Individuals ask the three key economic questions.
What, how, and who?
Free Market EconomiesFree 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”
Free Market EconomiesFree 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.
Free Market EconomiesFree Market Economies
Product Market -goods and services produced by firms are purchased by households.
Product Market -goods and services produced by firms are purchased by households.
The Self-Regulating Market
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.
How a Free Market System Meets Economic
Goals:
How a Free Market System Meets Economic
Goals:
Economic EfficiencyEconomic FreedomEconomic GrowthConsumer Sovereignty
Economic EfficiencyEconomic FreedomEconomic GrowthConsumer Sovereignty