A market economy is characterized by private property rights, free enterprise, and self-interest. Individuals and businesses, not the government, own property and means of production. People are free to start businesses, work where they choose, and exchange goods and services through voluntary transactions. Competition among businesses keeps prices low while seeking profits motivates economic activity that benefits society. The government establishes property rights and provides some services while otherwise allowing private markets to function with minimal interference.
A market economy is characterized by private property rights, free enterprise, and self-interest. Individuals and businesses, not the government, own property and means of production. People are free to start businesses, work where they choose, and exchange goods and services through voluntary transactions. Competition among businesses keeps prices low while seeking profits motivates economic activity that benefits society. The government establishes property rights and provides some services while otherwise allowing private markets to function with minimal interference.
A market economy is characterized by private property rights, free enterprise, and self-interest. Individuals and businesses, not the government, own property and means of production. People are free to start businesses, work where they choose, and exchange goods and services through voluntary transactions. Competition among businesses keeps prices low while seeking profits motivates economic activity that benefits society. The government establishes property rights and provides some services while otherwise allowing private markets to function with minimal interference.
A system of private property means that individual and private businesses, not the government, own most land and capital goods. The right to own private property (property rights) provides incentives to owners to take care of the property and to invest in it and therefore encourages the efficient allocation of resources and economic growth.
Free Enterprise (p. 51)
Free enterprise means that, within legal limits, individuals are free to open businesses and to produce and sell the goods and services of their choice. Individuals are also free to work where they want and to buy the goods and services they want with their earnings.
Self-Interest and/or the Profit Motive (p. 53)
Self-interest drives people to get the best job they can, to get the most for their money and to earn the most profit in their businesses. When everyone does this, resources are used to produce the goods and services everyone wants, which is a desirable outcome. Self-interest is not the same as selfishness and does not mean that people cannot and do not help others. As Adam Smith pointed out in 1776 in his book The Wealth of Nations, people acting n their own self- interest are guided as if by an “invisible hand” to do what is best for society as a whole.
Competition (p. 31)
Competition keeps prices in line with the costs of production. If one seller raises prices in an attempt to earn excessive profits, competition from other sellers (who also want to earn profits) will drive the prices down. Pure competition assumes that sellers can easily leave one business and easily enter another one. Competition among buyers prevents any one buyer from controlling prices by refusing to buy something.
Voluntary Exchange (p. 53)
Voluntary exchange means that buyers and sellers are free to engage in transactions. In other words, producers are not forced to sell their products to consumers and consumers are not forced to buy products from producers. If the consumer values the producer’s product more than their money, they’ll give their money to the producer in exchange for the product. If the producer values the consumer’s money more than the product they are making, they’ll also engage in the transaction…both parties win!
Limited Government—Laissez Faire (p. 41)
Although market economies can operate in most respects without government interference, there are important roles for government to play. At a minimum, government is needed to define and enforce property right and to provide some goods and services such as national defense that are not provided efficiently by markets.