Lesson 7 Review

Adam Smith

Known as the 'Father of Capitalism'; argued for a free market economy.

Law of Supply and Demand

Prices are determined by the relationship between supply and demand.

Laissez-Faire

A policy of minimal government interference in the economy.

Invisible Hand

The self-regulating nature of the marketplace where individuals pursuing their own interest benefit society.

Karl Marx

Criticized capitalism and argued for a classless society; believed in a revolution of the working class.

Bourgeoisie

The capitalist class who own most of society's wealth and means of production.

Proletariat

The working class who sell their labor to the bourgeoisie.

Factors of Production

Resources needed to produce goods and services: Land, Labor, Capital.

Scarcity

The condition resulting from limited resources and unlimited wants.

Allocation

The process of distributing resources among competing uses.

Circular Flow Model

A visual model showing how money, resources, and goods/services move in an economy.

TANSTAAFL

'There Ain’t No Such Thing As A Free Lunch' – Every choice has a cost.

Trade-Off

Giving up one thing to get something else.

Opportunity Cost

The most valuable alternative given up when a choice is made.

Market Economy

An economic system where decisions are made by individuals and businesses.

Planned/Command Economy

An economic system where the government makes all economic decisions.

Mixed Economy

An economic system that combines features of market and command economies.

Basic Economic Problem

Scarcity forces people to make choices due to limited resources.

Three Major Economic Questions

What to produce? How to produce it? For whom to produce?

Resource Market

Recieve Wages from Businesses and Firms, Distribute Income to Households, Recieve Human, Natural, and Captial Resources from Households. They are factors of production to Business/Firms.

Business/Firms

Recieve Profit/Revenue from the product market, sell their goods and services to the product market

Product Market

Households buy their goods and services, Households spend towards them

Households

Sell human, natural, and capital resources to the resource market. Income is distributed to households

Planned/Command government

Communism. Ex: North Korea

Mixed Government

Socialism

Capitalism

Free Market, Business, Private. Ex: U.S.