When you go shopping, you usually find all the products and services you are looking for, at prices you are willing to pay. It is actually surprising that somehow merchants in cities as large as New York, Los Angeles, and Chicago know what products to stock in their stores and in what quantities. Adam Smith, the father of modern economics, described this situation by saying that the free market economy operates as if an "invisible hand" (the price system) is directing it.

• What is the process by which the free market economy determines what goods and services should be produced?
• And how do non-free market economies decide which goods to produce?
• In general, what are the differences between market and centrally planned economies? You can contrast free-market economies like the USA with command economies such as China, explaining the benefits and problems of both systems.

This week's topic is intended to provide you with an opportunity to reflect on how markets work. To do this, (1) you will need to explore the concepts of scarcity and opportunity cost, and (2) you will need to explore and become familiar with the supply and demand model. The supply and demand model is a basic tool used by economists to illustrate how markets work, and to illustrate the impact on prices and quantities of 4 possible scenarios: increasing and decreasing supply and increasing and decreasing demand. You should demonstrate an understanding of the tool.