econ unit 2

what are the 3 economic questions?

what goods and services should be produced

how should these goods and services be produced

who consumes these goods and services

factor payments

the income people receive for supplying factors of production(LLC)

traditional econ system

based on agriculture

limited barter trade

tribal

command econ system

controlled by strong central government

focus on industrial goods

less attention on consumer goods and agriculture

free market system

based on supply and demand by individuals

focus on consumer goods

little government intervention

mixed system

combined market and command econ systems

market forces control most consumer goods

government directs industry in need areas

laws solve market failures

what is a market

Arrangement that allows buyers and sellers to exchange g/s and resources needed to produce g/s. Voluntary, transactional, mutually beneficial.

why are markets needed

nobody is self sufficient

what do markets lead to

specialization and division of labor

the concentration of the productive efforts of individuals to efficiently produce g/s, which leads to more production (output.)

what is free enterprise

Freedom to be entrepreneurial

Private ownership of the factors of production

Using free markets to acquire resources and deliver products without constraint or undue burdens (govt. interventions or regulations)

why does free enterprise work

self interest and incentives

laissez faire

invisible hand

how the market regulates itself

what is key to markets

competition

the struggle among producers for the dollars of consumers and for scarce resources.

consumer sovereignty

power and control is in the hands of the consumers

Consumer demands and their collective voting with their wallets dictates what, how, and for whom goods and services are produced.

pros of a market system

economic efficiency

economic freedom

economic growth

cons of a market system

equity?

security?- for income, necessary g/s

market failure? - too much bad or too little good produced

circular flow model : household

person or group living in the same residence , owns land labor capital

circular flow model: firm

organization that uses resources (LLC) to produce a product

inputs>outputs

circular flow model: factor (resource) market

where firms purchase the factors of production from households

labor

borrow money to obtain resources

circular flow model: product market

households purchase goods and services that firms produce

which is A

product markets

which is B

households

which is C

factor markets

which is D

firms