Basic Characteristics of a Market Economy

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Basic Characteristics of a Market Economy
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Private Property

• Private individuals and groups are the owners of
  the means of production most land and capital
  goods. The right to own private property provides
  incentives to owners to take care and invest in
  the property. Ultimately, this allows for
  economic growth.

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B. Free Enterprise

• Within legal limits, individuals are free to open
  businesses and to produce and sell the goods and
  services of their choice. We can work where we
  want and buy whatever we can afford with our
  savings.

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Self-Interest

• Drives people to get the best job they can, to
  get the most for their money, and earn the most
  profit for their businesses. When everyone does
  this, resources are used to produce goods and
  services to the most desirable outcome.

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Continued.

• As Adam Smith wrote in his book, The Wealth of
  Nations, in 1776, people acting in their own
  self-interest are guided by an invisible hand
  to do what is best for society.

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D. Competition

• Keeps prices in line with the costs of
  production. If one seller raises prices to earn
  excessive profits, competition from other sellers
  will drive the prices down.

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E. Markets and Prices

• The forces of supply and demand determine prices.
  Most exchanges are handled through markets
  local, regional, national, and international.
  Prices are set by the interactions of buyers and
  sellers.

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F. Limited Government

• The governments regulatory role is restricted by
  constitutional or legal limits. Defining and
  enforcing property rights is an obligation of
  government in a market system.

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