Chapter 2: Section 2: Free Market

Transcription

1 Chapter 2: Section 2: Free Market

2 Objectives Today we will study the elements of the Free Market System. Students will learn how a Free Market System operates and see practical applications of this system in everyday life.

3 Luk_10:7 And in the same house remain, eating and drinking such things as they give: for the labourer is worthy of his hire. Go not from house to house.

4 What are examples of economic freedom that we have? Freedom to own property, get a job, spend how much money how you want. Americans highly value economic freedom.

5 Why Market Exist A market is any arrangement that allows buyers and sellers to exchange things. Markets eliminate the need for any one person to be self-sufficient. None of us produces all we require to satisfy our needs and wants. Markets allows us to exchange the things we have for the things we want.

6 Specialization: Instead of being self-sufficient, each of us specializes in a few products or services. Specialization is the concentration of productive efforts of individuals and businesses on a limited number of activities. For example: Apple specializes in making computers not refrigerators. In and Out sells burgers and not pasta.

7 Specialization: Specialization leads to efficient use of capital, land, and labor. It is easier for people to learn one task or a few tasks very well than to learn them all. Because they concentrate on a few tasks they can do their work efficiently saving resources by avoiding waste.

8 Discussion Question Is it better for a nation to be self-sufficient? (Producing all its own goods and services) Or is it better to commit to specialization?

9 Buying and Selling Without specialization markets would not be necessary. However, because each of us specializes in producing just a few goods or services, we need a mechanism that allows us to sell what we have produced and buy what we want. In a modern market-based economy, people typically earn income by specializing in particular jobs. They then use this income to buy the products that they want to consume.

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11 The voluntary exchange in markets by the choices made by the individual determining what gets made, how it is made, and how much people can consume of the goods and services produced and where individuals make their own decisions about what to buy and sell is a Free Market.

12 Household and Firms The participants in a free market economy are households and firms. A household is a person or group of people living in a single residence. Households own the factors of production, land, labor, and capital. They are also consumers of goods and services.

13 Household and Firms A business or firm is an organization that uses resources to produce a product or service, which it then sells. Firms transform inputs or factors of production into outputs or goods and services.

14 Factor and Product Markets: Firms purchase factors of production from households. This arena of exchange is called the factor market. Firms purchase or rent land. They hire workers, paying them wages or salaries for their labor. They also borrow money from households to purchase capital, paying households interests or profits in return.

15 Factor and Product Markets: The arena in which households buy the goods and services that firms produce is the product market. Households purchase the products made by firms with the money they received from firms in the factor market. The flow between the factor market and the product market is truly circular.

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17 Ecc_9:10 Whatsoever thy hand findeth to do, do it with thy might; for there is no work, nor device, nor knowledge, nor wisdom, in the grave, whither thou goest. Woe unto him that buildeth his house by unrighteousness, and his chambers by wrong; that useth his neighbour's service without wages, and giveth him not for his work; Jeremiah 22:13

18 Job was the richest man of his time but what did he do? (Job 30:25) Did not I weep for him that was in trouble? was not my soul grieved for the poor? 1Ti_6:10 For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.

19 (Rom 13:10) Love worketh no ill to his neighbour: therefore love is the fulfilling of the law.

20 Those who receive pay for their labor should put in good time. They should be producers as well as consumers. As they obtain an education in these lines, they will become more and more able to do perfectly the work assigned to them. They will be ready to take hold of the work in any place.-- Letter 87, {CS 270.1}

21 In God's plan for Israel every family had a home on the land with sufficient ground for tilling. Thus were provided both the means and the incentive for a useful, industrious, and self-supporting life. And no devising of men has ever improved upon that plan. To the world's departure from it is owing, to a large degree, the poverty and wretchedness that exist today. {CT 275.3}