Characteristic of a Characteristic of a Market EconomyMarket Economy

Ms. RossMs. Ross

Private PropertyPrivate Property

Individuals and private businesses Individuals and private businesses own most land and capital goods.own most land and capital goods.

Ownership of property provides Ownership of property provides incentives to care for property and incentives to care for property and invest in property.invest in property.

Why do we have so few whales and Why do we have so few whales and so many chickens?so many chickens?

Free EnterpriseFree Enterprise

Low barriers to entering and exiting a Low barriers to entering and exiting a market or starting a businessmarket or starting a business

Consumer and worker sovereigntyConsumer and worker sovereignty

Self-interestSelf-interest

We all seek our own self-interest in We all seek our own self-interest in making choices.making choices.

The Wealth of NationsThe Wealth of Nations (1776) – Adam (1776) – Adam Smith, Father of CapitalismSmith, Father of Capitalism

““Invisible hand” of the MarketplaceInvisible hand” of the Marketplace

Adam SmithAdam Smith

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

CompetitionCompetition

Competition among sellers insures Competition among sellers insures fair market prices.fair market prices.

Has brought us great variety of Has brought us great variety of products at competitive prices.products at competitive prices.

Sellers must be productive in order Sellers must be productive in order to be competitive.to be competitive.

Competition among buyers prevents Competition among buyers prevents any one buyer from controlling any one buyer from controlling prices.prices.

System of Markets and PricesSystem of Markets and Prices

The forces of supply and demand, The forces of supply and demand, not the government, determines not the government, determines prices.prices.

Limited GovernmentLimited Government

There is a limited but important role There is a limited but important role for government to play in our for government to play in our economy.economy.

What is an appropriate role for What is an appropriate role for government in a free market?government in a free market?

Laissez-faire systemLaissez-faire system

A Pure Market or laissez-faire A Pure Market or laissez-faire system means that government system means that government doesn’t interfere in economic doesn’t interfere in economic activities and lets the economy run activities and lets the economy run itself.itself.

The Role of Government in a The Role of Government in a Market EconomyMarket Economy

A.A. Provide a Legal SystemProvide a Legal System to make to make and enforce laws and to protect and enforce laws and to protect private property rights.private property rights.

B.B. Provide Public Goods Provide Public Goods that that individuals or private businesses individuals or private businesses would not provide.would not provide.

C.C. Correct Market Failures Correct Market Failures such as such as external costs and economic external costs and economic slowdown (unemployment).slowdown (unemployment).

d. d. Maintain CompetitionMaintain Competition by by regulating monopolies.regulating monopolies.

e. e. Redistribute Income Redistribute Income by taxing by taxing those with larger incomes and those with larger incomes and helping those in need.helping those in need.

f. f. Stabilize the Economy Stabilize the Economy by reducing by reducing unemployment and inflation, and unemployment and inflation, and promoting economic growth.promoting economic growth.

Market ValuesMarket Values

DisciplineDiscipline Honesty and TrustworthinessHonesty and Trustworthiness ToleranceTolerance CooperationCooperation CourtesyCourtesy EnterpriseEnterprise ResponsibilityResponsibility