Transcript WARM-UP

WARM-UP
1. The Internet is considered a Free Market
– tell me 5 ways that the internet has
changed our economy?
Econ
Ch 2.2
The Free Market
Markets
• A market is
an
arrangement
that allows
buyers and
sellers to
exchange
_________
things
Circular Flow
For each example below, predict whether the event should cause the
economy to increase or decrease production and consumption of
goods and services
1. Workers increase their education and
training and become more productive.
• An increase in production will cause the
economy to grow and the circular flow model will
move faster.
If people have better or more productive skills, they can produce
more goods and services with all of the other resources. If they can
______
resources production costs will
more
produce _______with
the same __________,
decrease
___________,
businesses will be more willing to increase production,
purchase more. If more goods are produced
and consumers will _________
grows
and consumed, the economy________.
2. Many new technologies
and inventions reduce the
costs of production
• An increase in
production will cause
the economy to grow
and the circular flow
model will move faster.
easier and _________
cheaper
New technologies make it _______
to
Lower
produce goods and services. ________
costs will be
an incentive for businesses to produce more goods
and services. If more goods and services are
decrease and consumers will
available, prices may _________
purchase more.
3. Producers discover new
sources of energy and other
natural resources.
• An increase in
production will cause the
economy to grow and
the circular flow model
will move faster.
resource costs mean that businesses can make
Lower ________
incentive for them to
more profit. More profit is an _________
produce more goods and services. If more goods and
decrease and
services are available, prices may _________
consumers will purchase more.
4. New laws encourage people to invest in
new businesses
• An increase in
production will
cause the economy
to grow and the
circular flow model
will move faster.
Business owners will invest
______ in new capital goods if
profits If
they anticipate that they will make more _______.
hire
they anticipate profits, they will ______
more workers
and purchase other resources. This creates more
demand more goods and
income
________,
people _______
services, and the economy_______.
grows
5. People have more income and feel good
about the future of the economy.
• An increase in
production will cause
the economy to grow
and the circular flow
model will move faster.
optimistic about the economy
When people are more ________
and their future income, they feel "wealthier." Feeling
willing to spend their
this way, they will be more _______
want
income on goods and services. If people ______
more goods and services and are willing to pay for
produce more and the
them, businesses will ________
economy will grow.
6. Many workers strike and refuse to produce
goods and services.
A decrease in
production will
cause the economy
to produce less and
the circular flow will
move more slowly.
less income, they can not ________
If people earn _____
demand
as many goods and services. If the demand for goods
decreases the economy will slow down
and services_________,
slowly
and the circular flow will move more______.
7. Environmental regulations make it
more difficult to use land resources.
• A decrease in
production will cause
the economy to
produce less and the
circular flow will move
more slowly.
difficult for businesses to
Regulations make it more ________
produce goods and services. This usually ________
increases the
______
of production and fewer goods and services are
cost
produced. If _______
goods and services are produced, less
fewer
income is earned and fewer goods and service are
________
slows down.
demanded. The economy _______
8. Interest rates are so high that
companies do not invest in new capital
• A decrease in
production will
cause the
economy to
produce less and
the circular flow
will move more
slowly.
expensive to build new
High interest rates make it more _________
factories and buy more machinery. If these costs increase,
businesses will _____
not expand or they may close down. If this
happens, the economy will not grow and the circular flow will
slow down.
9. There is political instability in some regions
of the world and business owners people fear
that conflicts that will stop trade.
• A decrease in
production will cause
the economy to
produce less and the
circular flow will move
more slowly.
When businesses feel that there is more ______
when trading
risk
with other countries, they will not invest in that production. If they
export they will not hire as many
do not produce as much for_______,
workers and they will not _____
buy other resources. This will
______
slow down the economy and the circular flow.
10. Many people fear that they might lose
their jobs.
• A decrease in
production will
cause the
economy to
produce less and
the circular flow
will move more
slowly.
If someone feels that they might not have as much income in
stop buying some goods, such
the future, they will probably _____
as new cars, appliances and houses. They will purchase
fewer services that they might consider to be "luxuries." If
_______
economyand the circular flow will slow
this happens, the _________
down.
The Self-Regulating Nature of the
market place
• According to Adam Smith, competition and
self-interest
our own __________
that keep the
marketplace functioning.
ADAM SMITH
• A philosopher who in
1776 published,
___________________
The Wealth of Nations
_explains that the
economy is made up of
countless individual
___________
where
transactions
each person (buyer and
only consider
seller) _____
their own _______gain;
personal
self-interest.
Competition
• Consumers in pursuit of their
self-interest, have the
incentive to look for ______
lower
________
prices. An incentive is the
_____
hope of a reward or the
_____
fear of punishment that
encourages a person to
behave a certain way.
• Adam Smith observed that
people respond to both
positive and negative
incentives.
• Economists call the _______
among
struggle
producers for the dollars of consumers
competition.
• While self-interest is the motivating force
competition
behind the free market, _________
is the
regulating force.
• Positive and Negative
What are the incentives (1 positive and 1
negative) if you are an
elected official,
owner of a small business,
president of a large company or the
director of a local United Way office?
Invisible Hand
• Term coined by Adam Smith that
economists use to describe the selfregulating nature of the marketplace.
– Ex. The overall result in an economy is that
products they want at
consumers get the _________
prices that closely reflect the cost of
producing them – all of which occurs without
_________
any central plan or direction.
Advantages of the Free Market
•
•
•
•
Economic efficiency
Economic freedom
Economic growth
Additional goals…including consumer sovereignty
– The power of consumers to decide what gets produced.
What do you plan to do after graduation?
Write one paragraph about how your
choices are motivated by self-interest.
Think about the specifics of your
choices…Which college? Where will you
travel? What type of job or business? Tell
me why you are making these choices and
then explain how your self-interest might
be affected by competition. (EX: not
getting into your 1st choice college)
Circular Flow Model
• In Groups of 2-3 create one real-world
example to illustrate the circular flow
model of a market economy…ex. Seven
Jeans. Place the model on butcher paper.
You have 10 minutes and then you will
present your model.