# data[].attributes.body
Activity

# data[].attributes.attachment_link.readable_text
You're the President of the United States, and you've got a tough decision to make. You want to do something to fight global warming, and you're considering a government-run cap and trade system to reduce carbon emissions.

But you're on the fence. Cap and trade would launch a big government intervention into the economy, and you have your doubts. Do the environmental benefits justify messing around with the balance between government and free market in our mixed economic system?

You've got to make a tough choice. But first, you've got to listen to the helpful (and not-so-helpful) advice of an army of scientists, politicians, and lobbyists. Play our Economic Systems Game and put yourself in the Oval Office. Make the right choice -- the fate of our world and economy may depend on it.

# data[].attributes.attachment_link.description
Economic Systems game by PhDs from Stanford, Harvard, Berkeley. Economic simulation with points and prizes in a Economic Systems game.

# data[].attributes.headline
Podcast: Role of Self Interest & Competition in a Market Economy

# data[].attributes.subject
Podcast: Role of Self Interest & Competition in a Market Economy

# data[].attributes.attachment_link.readable_text
Volume 1, Episode 3 (6:21)

Adam Smith described self-interest and competition in a market economy as the "invisible hand" that guides the economy. This episode of the Economic Lowdown Podcast Series explains these concepts and their importance to our understanding of the economic system.

* To provide students with online questions following this episode, register your class through the Econ Lowdown Teacher Portal.
More about the Q&A Resources for Teachers and Students "

More episodes:
* The Economic Lowdown Podcast Series

* The Economic Lowdown Video Series

Transcript

A market economy is an economic system in which individuals own most of the resources - land, labor, and capital - and control their use through voluntary decisions made in the marketplace. It is a system in which the government plays a small role. In this type of economy, two forces - self-interest and competition - play a very important role. The role of self interest and competition was described by economist Adam Smith over 200 years ago and still serves as foundational to our understanding of how market economies function.

Self Interest is the motivator of economic activity.

Why do you go to work? Why do you go to school? There may be many reasons, but at their core you probably go to work and school because you are self-interested. To be self-interested simply means that you seek your own personal gain. You go to work because you want to get paid so you can buy the things you want. You go to school so you can get a better job someday and earn more money to buy the things you want. In fact, most of the economic activity we see around us is the result of self-interested behavior. Adam Smith described it this way in his book, The Wealth of Nations:

"It is not from the benevolence (kindness) of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."

So why does the baker choose to bake? The answer is self-interest. The baker wants to earn enough money to feed his family and buy the things he wants and the most effective way he has found to do that is to bake bread for you. In fact his bread has to be good enough and the service friendly enough that you are willing to give up your money freely in exchange for his bread. The baker while serving his self-interest has produced a good that is very valuable to you. The miracle of a market system is that self-interest produces behavior that benefits others.

Is being self-interested greedy? Is it immoral? While the term self-interest has negative connotations, it does not necessarily imply greedy or immoral behavior. Self-interest just means that you seek your goals. In fact, your self-interest might lead you to study hard for your math test, give money to your favorite charity or volunteer at a local school.

Competition is the regulator of economic activity.

Doesn't self-interest lead to price gouging, corruption and cheating? Sometimes it does, but most often it is held in check by competition. Because other self-interested people are competing in the marketplace, my self-interest is held in check. For example, if I were a baker, the only way I would be able to earn your dollars is to produce bread that is better, cheaper or more convenient than the bread produced by the other bakers in town. If I were to increase my price too much, you would likely buy bread from my competitors. If I were to treat you poorly when you enter my store, you would likely buy from my competitors. If my bread were moldy or inferior in any way, you will likely buy from my competitors. In order to earn your money I must provide a high quality good or service at a reasonable price. You will notice that this assumes I have competitors. If I were the only baker in 100 miles, I might be able to charge a high price, sell inferior products, or treat my customers rudely - but even in that case, another self-interested person might see an opportunity to earn a profit and open a competing bakery in town. Thus, competition is the regulator, a check on self-interest because it restrains my ability to take advantage of my customers.

The Invisible Hand

Adam Smith described the opposing, but complementary forces of self-interest and competition as the invisible hand. While producers and consumers are not acting with the intent of serving the needs of others or society, they do. When you work, your goal is to earn money, but in the process you provide a valuable good or service that benefits others and society. The amazing part of this process is that there is very little government control. The bread you buy at the store arrived as the result of hundreds of self-interested people cooperating without a government bread agency managing production at each step along the way. The farmer grew the grain, the mill prepared the flour, the bakery produced the bread, the truck driver delivered the bread to the grocery store, the grocer stocked the shelves and sold the loaf to the consumer all without a Government Secretary of Bread Production telling any of them what, where, when, or how much to produce. It's as if they were being guided by an invisible hand that guided resources to their most valued use. In the words of Adam Smith:

"by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention."

Regulation

The discussion of self-interest and competition usually results in a discussion of the proper role of government regulation. Some see a market economy as largely self-regulating, assuming there are enough firms competing in the market to be a check on self-interest. Others point to examples of fraud where competition has failed to be an adequate check on self-interest - they argue that government must take a more active role regulating economic activity. In fact, much of the fighting among political groups has to do with the question of how much government control is needed to regulate the economy.

To recap, self-interest and competition are very important economic forces. Self-interest is the motivator of economic activity. Competition is the regulator of economic activity. Together they form what Adam Smith called the invisible hand, which guides resources to their most valued use.

---

If you have difficulty accessing this content due to a disability, please contact us at 314-444-4662 or economiceducation@stls.frb.org.

# data[].attributes.attachment_link.title
The Role of Self-Interest and Competition in a Market Economy | Education Resources | St. Louis Fed

# data[].attributes.attachment_link.description
Volume 1, Episode 3 (6:21) Adam Smith described self-interest and competition in a market economy as the "invisible hand" that guides the economy. This episode of the Economic Lowdown Podcast Series explains these concepts and their importance to our understanding of the economic system.

# data[].attributes.attachment_link.readable_text
Image

Photograph by Hindustan Times

Scarcity is one of the key concepts of economics. It means that the demand for a good or service is greater than the availability of the good or service. Therefore, scarcity can limit the choices available to the consumers who ultimately make up the economy. Scarcity is important for understanding how goods and services are valued. Things that are scarce, like gold, diamonds, or certain kinds of knowledge, are more valuable for being scarce because sellers of these goods and services can set higher prices. These sellers know that because more people want their good or service than there are goods and services available, they can find buyers at a higher cost.

Scarcity of goods and services is an important variable for economic models because it can affect the decisions made by consumers. For some people, the scarcity of a good or service means they cannot afford it. The economy of any place is made up of these choices by individuals and companies about what they can produce and afford.

The goods and services of any country are limited, which can lead to scarcity. Countries have different resources available to produce goods and services. These resources can be workers, government and private company investment, or raw materials (like trees or coal). Certain limits of scarcity can be balanced by taking resources from one area and using them somewhere else. Sellers like private companies or governments decide how the available resources are spread out. This is done by trying to strike a balance between what consumers need or want, what the government needs, and what will be an efficient use of resources to maximize profits. Countries also import resources from other countries, and export resources from their own.

Scarcity can be created on purpose. For example, governments control the printing of money, a valuable good. But, paper, cotton, and labor are all widely available across the world, so the things required to make money are not themselves scarce. If governments print too much money, the value of their money decreases, because it has become less scarce. When the supply of money in an economy is too high, it can lead to inflation. Inflation means the amount of money needed to buy a good or service increases-therefore money becomes less valuable, and the same amount of money can buy less over time than it could in the past. It is therefore in a country's best interest to keep its paper money supply relatively scarce. However, sometimes inflation can help an economy. When money is less scarce, people can spend more, which triggers a rise in production. Low inflation can help an economy grow.

National Geographic Society

October 19, 2023

# data[].attributes.attachment_link.description
One of the defining features of economics is scarcity, which deals with how people satisfy unlimited wants and needs with limited resources. Scarcity affects the monetary value people place on goods and services and how governments and private firms decide to distribute resources.

# data[].attributes.attachment_link.readable_text
Teaching Activities

Level:

A-Level, IB

Board:

AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 17 May 2021

Download this classic interactive teaching activity to use with your Economics students as an introduction to Game Theory and Oligopoly!

The purpose of The Oligopoly Game is to demonstrate the issue of game theory that presents itself to firms operating in an oligopolistic market when they are prevented from colluding by competition law.

The game, which usually takes around an hour to complete, mimics the classic conundrum of the 'prisoners' dilemma.' The firms are attempting to make decisions about how they should operate without knowing for certain how their competitors will react. The problem is that their competitors' reaction will have an impact on the success of the initial decision. The game illustrates that, for oligopolistic firms, the fact that they cannot predict their competitors reaction ultimately leads them to 'play safe' - i.e. shy away from changing prices and attempt to improve sales and profits by using other non-price strategies (such as increased advertising).

Download this free tutor2u resource

© 2002-2024 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.

# data[].attributes.attachment_link.title
Teaching Activity: The Oligopoly Game (Game Theory)

# data[].attributes.attachment_link.description
Download this classic interactive teaching activity to use with your Economics students as an introduction to Game Theory and Oligopoly!

# data[].attributes.attachment_link.readable_text
Objectives

· Analyze the advantages and disadvantages of different systems in the process of designing an ideal economy.

· Engage in problem-solving activities with others that focus on questions that are central to the organization of the ideal economy.

Materials

Time

Three to four class periods

Evaluation

Group record sheets can be turned in and group presentations can be evaluated.

For a more individual evaluation, students can respond to the questions on the handout, "Evaluation of Your Island Economy." This can be used as a test or assessment covering basic economic concepts, including many from Lesson 1 and 2.

Vocabulary

natural resources land, labor and capital socio-economic goals

trade-offs opportunity costs scarcity

Suggested Procedure

1) Divide students into groups of four.

2) Read the Island scenario to the whole class. Have students select roles in their groups.

3) Have each group discuss the questions on the handout Setting up Your Island Economy and record their answers.

4) Then have each group draw one (or more) of the Problem Solving cards from a hat and work out a solution.

5) Ask each group to record their decisions and report back to the whole class how they set up their economy, what their issue was, and how they proposed to deal with it. Use this as a time to facilitate whole class discussion on the questions.

6) Have students prepare for and then individually perform the "Evaluation of Your Island Economy."

# data[].attributes.attachment_link.description
Objectives · Analyze the advantages and disadvantages of different systems in the process of designing an ideal economy. · Engage in problem-solving activities with others that focus on questions that are central to the organization of the ideal economy. Materials Time Three to four class periods Evaluation Group record sheets can be turned in and group presentations can be evaluated.

# data[].attributes.headline
Video Clip: What is a traditional economy?

# data[].attributes.subject
Video Clip: What is a traditional economy?

# data[].attributes.attachment_link.description
Multiple choice questions reviewing the concepts of Traditional, Command, and Market Economies.

# data[].attributes.headline
Opportunity Costs & Tradeoffs Video and Practice Questions

# data[].attributes.subject
Opportunity Costs & Tradeoffs Video and Practice Questions

# data[].attributes.attachment_link.title
Opportunity Cost and Tradeoffs | Marginal Revolution University

# data[].attributes.attachment_link.description
In this engaging video, economist Tyler Cowen reveals two fundamental concepts from economics: opportunity cost and tradeoffs.

# data[].attributes.attachment_link.description
In this economics drag and drop, students will learn about the different types of market structures.

# data[].attributes.headline
Exit Ticket (Cross Over):  Government Management of Market Structures

# data[].attributes.subject
Exit Ticket (Cross Over):  Government Management of Market Structures

# data[].attributes.headline
Unit 1 Plan Slideshow (Summary of each day's plan with links)

# data[].attributes.subject
Unit 1 Plan Slideshow (Summary of each day's plan with links)