Characteristics of a Market Economy

what is the driving force of a market economy

motive of self-interest

Disadvantages of a market economy

only those people with resources may take part in a market economy; often due to an income gap; people with the most resources (money) keep getting richer, while people with fewer resources get poorer.

competition

limits abuse of economic power by one business or individual against another; buyers and sellers are free to enter or leave any market; buyers and sellers are acting independently in the marketplace

free enterprise

private entrepreneurs are free to get and use resources and use them to produce goods and services; they are free to sell these goods and services in markets of their choice.

True free market economy

an economy in which all resources are owned by individuals; decisions about allocation of resources are made by individuals without govt intervention; decisions are influenced by the pressures of competition, supply, and demand

Advantages of a market economy

competition ensures greater quality and lower prices for consumers; individuals are encouraged to take business risks to further their own economic interests, which benefit the economy as a whole

Freedom of choice

consumers are free to buy the goods and services that best fill their wants and needs

Private ownership

permits people to obtain and use resources as they choose, often combined with the freedom to negotiate legally binding contracts

Most important characteristics of a market economy

the role of limited govt; most economic decisions are made by buyers and sellers, not govt

System of markets and prices

the structure of a market economy; brings buyers and sellers together; prices are the guideposts on which buyers and sellers make and revise their free choices in furthering their self-interests

Command economy

type of economic system where a government controls the market

Market economy

type of economic system where supply and demand regulate the economy, rather than government intervention; almost everything is owned by individuals and private businesses--not by the govt