
The “Market”
› Any arrangement that permits producers
(sellers) and consumers (buyers) to exchange
goods and services

Characteristics of advanced societies
› No one is self-sufficient
› Specialization – doing one “special” thing
 Easier for people to learn one thing
 Work is made more efficient as people get
better and better at it
 Businesses specialize to use resources more
efficiently

It’s “free” of government interference

Consumer Sovereignty
› Individuals decide what they want to buy
› Entrepreneurs decide what they will produce
 They want to make a profit
 They need to make what the people want to
buy

Cycle of wealth
(turn to page 31 in your text)
› Product market
 People (HOUSEHOLDS) pay money to get products
(goods and services)
 Businesses (FIRMS) sell products (goods and
services) to get the people’s money
› Factor Market
 People (HOUSEHOLDS) sell their resources
(land, labor, capital) to get money
 Businesses (FIRMS) give money to buy resources
(land, labor, capital)
Economic Philosopher
 Trying to make the best system

› Productive
› Efficient
› Fair
Self-interest (greed) drives people and
businesses
 Work for incentives

› Positive = good things/rewards
› Negative = bad things/punishments

Competition drives the system
› Businesses compete for the dollars
 Lower costs
 Improve quality
 Offer variety
› Customers compete for the dollars
 Best jobs
 Best bargains

The Invisible Hand
drives the system to
become most efficient
Efficient
 Economic freedom of choice
 Growth and ingenuity
 Variety of goods
