“Invisible Hand” Exercise Write at least two paragraphs

describing the following: Self Interest “Invisible Hand” How are these two related as

described by Adam Smith in his “Wealth of Nations” book.

2.2 -Features of U.S. Economy Free Enterprise—System under

which business can be conducted freely with little government intervention.

Capitalism Market economy

2.2 Free Enterprise Five Main Features of Free-

Enterprise:1. Own private property and enter into

contracts.2. Make individual choices3. Engage in economic competition4. Make decisions based on self interest5. Participate with limited gov’t regulation.

2.2 Free Enterprise Private Property-Goods that are

owned by individuals and by businesses rather than by the government.

Contracts-Individuals have the right to enter into agreements with one another to buy and sell goods and services.

-Closely linked to right to own private property and enter into contracts

2.2 Free Enterprise Competition-The economic rivalry that

exists among businesses selling the same or similar products.

Self-Interest Decisions-The force that directs the actions of individuals and firms in a market system.

Limited Gov’t Involvement-Production decisions are made by individuals.

2.2 Economic Actors Producers-Provide goods and

services in the market. Consumers—Influence production

by purchasing goods and services. Government-Oversees and

regulates the effects of producers/consumers decisions what, how, whom to produce.

2.2 Circular Flow Model Circular Flow Model--In free

enterprise system, resources, products, and money payments are exchanged among the different actors in the economy.

Green arrows=Product market Gold arrows=Resource market Income-$ paid to households in

exchange for for their resources. See page 34

Circular Flow Model 1. What does the CFM illustrate

about the government, business, and household, dependence on each other?

What happens if one of the sectors (government,business,household) gets “sick”?

Should we be concerned if business growth slows down? Why? THINK!