What is a characteristic of a market economy?
I. Capitalist Ideology Show II. The Market System at Work
Select the BEST answer: TO DECIDE HOW TO USE ITS LIMITED RESOURCES TO SATISFY HUMAN WANTS PURE CAPITALISM RELIES ON: A. CENTRAL PLANNING Pure Capitalism and the Market System: The Market and the 5 EsCharacteristics of a Market Economy (Capitalism) A. private property The Market and the 5Es 1. Economic GrowthCapitalist economies tend to have more rapid rates of growth This chapter begins with a discussion of the institutional framework of the American market system. Brief explanations are given for these characteristics of the market system: private property, freedom of enterprise and choice, the role of self-interest, competition, markets and prices, the reliance on technology and capital goods, specialization, use of money, and the active, but limited role of government. In the final section of the chapter, the authors address the Four Fundamental Questions faced by every economy and explain how a market economy answers each one. I. Characteristics of the Market System A. Private individuals and firms own most of the private property (land and capital). 1. Private property, coupled with the freedom to negotiate binding legal contracts, enables individuals and businesses to obtain, control, use, and dispose of this property. B. Freedom of enterprise and choice exist. 1. Freedom of enterprise means that entrepreneurs and businesses have the freedom to obtain and use resources, to produce products of their choice, and to sell these products in the markets of their choice. C. Self-interest 1. Self interest is one of the driving forces in a market system. Entrepreneurs try to maximize profits or minimize losses; resource suppliers try to maximize income; consumers maximize satisfaction. D. Competition among buyers and sellers is a controlling mechanism. 1. Large numbers of sellers mean that no single producer or seller can control the price or market supply. E. Markets and prices 1. A market system conveys the decisions of the many buyers and sellers of the product and resource markets. F. Reliance on technology and capital goods 1. Competition, freedom of choice, self-interest, and the potential of profits provide the incentive for capital accumulation (investment). G. Specialization 1. Division of labor allows workers to specialize.a. People can take advantage of differences in abilities and skills. H. Use of money as a medium of exchange 1. Money substitutes for barter, which requires a coincidence of wants. (I may want what you produce but you may not want to exchange for what I have.) I. Active, but limited government 1. Although the market system promotes efficiency, it has certain shortcomings (over production of goods with social costs, under production of goods with social benefits, tendency for business to increase monopoly power, macro instability). III. The Market System at Work A. The market system is made up of millions of individual decision makers who make trillions of decisions all of which are attempting to maximize their individual or business self-interest. B. The market is a mechanism by which the consumers and producers can come together to respond to each other’s desires and wants in an efficient way. C. Although the focus of this chapter is on the market system, the four fundamental questions must be answered by all economic systems. 1. What goods and services will to be produced? D. What will be produced? 1. In order to be profitable, businesses must respond to consumers’ (individuals, other businesses, and the government) wants and desires. E. How will the goods and services be produced? 1. The market system encourages and rewards those producers who are achieving productive efficiency, i.e., least-cost production. F. Who will get the goods and services? 1. The answer to this question is directly related to how the income is distributed among the individuals and the households and the tastes and preferences of consumers. G. How will the system accommodate change? 1. Accommodating changes in consumer tastes and the guiding function of prices:a. An increase in demand for some products will lead to higher prices in those markets. III. Competition and the "Invisible Hand": IV. LAST WORD: Shuffling the Deck What are the 6 characteristics of a market economy?Brief explanations are given for these characteristics of the market system: private property, freedom of enterprise and choice, the role of self-interest, competition, markets and prices, the reliance on technology and capital goods, specialization, use of money, and the active, but limited role of government.
What is a characteristic of a market economy quizlet?Most important characteristics of a market economy. the role of limited govt; most economic decisions are made by buyers and sellers, not govt. Private ownership. permits people to obtain and use resources as they choose, often combined with the freedom to negotiate legally binding contracts. free enterprise.
What are the 4 characteristics of a market?Characteristics of Market:. (1) An Area:. (2) One Commodity:. (3) Buyers and Sellers:. (4) Free Competition:. (5) One Price:. Meaning:. Determinants:. Number and Nature of Sellers:. What are three important characteristics of a market economy explain?A market economy functions under the laws of supply and demand. It is characterized by private ownership, freedom of choice, self-interest, buying and selling platforms, competition, and limited government intervention.
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