The document discusses key concepts of a market economy including how markets allocate scarce resources, utility and preferences, and how prices transmit information. It addresses topics like normal goods versus inferior goods, markets being amoral but self-correcting systems, and the circular flow model showing how every transaction benefits both parties. The pillars of free enterprise like private property, specialization, voluntary exchange and the price system are also summarized.

1. The Market Economy
Utility, Preferences, Profits
and Incentives

2. Entrance Ticket
•What is the best
way to allocate
scarce resources?

3. Coke and East
Germany

4. Rich vs. Poor

5. Normal Goods vs. Inferior
Goods
• As income • As income
increases, increases,
consumption consumption
increases. decreases.

6. Is it fair for those of us who live
comfortably to impose our
preferences on individuals in the
developing world?

7. Why aren’t these men
selling car insurance?

8. Utility
• People act to increase their utility at
all times.
• Why is this not the same as being
selfish?

9. The Power of Markets

10. Markets are amoral

11. Command Economy
Communism

12. Markets are Self-Correcting

13. Prices Transmit Information
• How do prices transmit information?
• What happens when demand goes up
for a product? What does that tell
the producer?
• What happens to the prices of
oranges in Ohio when a hurricane
hits Florida? Why?
• What happens to the price of lumber
and other construction equipment in
Florida during an active hurricane
season?

14. The Circular Flow Model

15. Every Transaction Benefits
Each Party

16. The Pillars of Free Enterprise
• Private property
• Specialization
• Voluntary exchange
• The price system
• Market competition
• Entrepreneurship