Characteristics of a Market Economy
By Cindy Grigg
  

1     A market economy is a type of economic system where supply and demand regulate the economy, rather than government intervention. A true free market economy is an economy in which all resources are owned by individuals. The decisions about the allocation of those resources are made by individuals without government intervention. There are no completely "free-enterprise" or market economies. The United States has more characteristics of a market economy than a command economy, where a government controls the market. In a market economy, the producer gets to decide what to produce, how much to produce, what to charge customers for those goods, and what to pay employees. These decisions in a free-market economy are influenced by the pressures of competition, supply, and demand.
 
2     One of the most important characteristics of a market economy, also called a free enterprise economy, is the role of a limited government. Most economic decisions are made by buyers and sellers, not the government. A competitive market economy promotes the efficient use of its resources. It is a self-regulating and self-adjusting economy. No significant economic role for government is necessary. However, a number of limitations and undesirable outcomes associated with the market system result in an active, but limited economic role for government.
 
3     In a market economy, almost everything is owned by individuals and private businesses- not by the government. Natural and capital resources like equipment and buildings are not government-owned. The goods and services produced in the economy are privately owned. This private ownership, combined with the freedom to negotiate legally binding contracts, permits people to obtain and use resources as they choose.
 
4     A market economy has freedom of choice and 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. Consumers are free to buy the goods and services that best fill their wants and needs. Workers are free to seek any jobs for which they are qualified.
 
5     A market economy is driven by the motive of self-interest. Consumers have the motive of trying to get the greatest benefits from their budgets. Entrepreneurs try to get the highest profits for their businesses. Workers try to get the highest possible wages and salaries. Owners of capital resources try to get the highest possible prices from the rent or sale of their resources. This "invisible hand" of self-interest is the driving force of a market economy.
 
6     Competition is another important characteristic of a market economy. Instead of government regulation, competition limits abuse of economic power by one business or individual against another. Each competitor tries to further his own self-interest. This economic rivalry means that buyers and sellers are free to enter or leave any market. It also means that buyers and sellers are acting independently in the marketplace. When businesses compete for customers, they want to sell their goods or services at the lowest possible price while still earning a profit for themselves. Consumers compete for goods and services. If the supply of a needed good or service is low, the consumer must pay a higher price. Consumers must compete to get goods or services by paying more or going out of their way to buy the products they need or want.
 
7     A system of markets and prices working together are the structure of a market economy, not the central planning by government. A market brings buyers and sellers together. The wants of buyers and sellers are registered on the supply and demand sides of various markets. The outcome of these choices is a system of product and resource prices. Prices are the guideposts on which buyers and sellers make and revise their free choices in furthering their self-interests.
 
8     The advantages of a market economy are many. Competition insures 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. Economists Friedrich von Hayek and Milton Friedman believe that the more economic freedom that is available, the more civil and political freedoms a society will enjoy.
 
9     Some disadvantages are that only those people with resources may take part in a market economy. There is often an income gap. People with the most resources (money) keep getting richer, while people with few resources get poorer. Some services, like railroads and airlines, have problems offering their services while maintaining low prices. In these cases, government may step in to keep the services available at a reasonable cost to consumers because the service benefits the society as a whole. Some critics of market economies say that greed is the driving principle. They think that markets should not be allowed to profit while causing potential harm to the environment by using up all available resources and polluting the planet.

Copyright © 2011 edHelper

Name _____________________________
Date ___________________
Characteristics of a Market Economy

1.   What is a market economy?
  An economic system taking from each according to ability and giving to those in need
  A government-regulated economic system
  An economic system with only the most educated having the power
  An economic system regulated by supply and demand, not the government
2.   Who makes the decisions in a market economy?
  The educated
  The government
  Buyers and sellers
  The wealthy
3.   Who owns most of the resources, equipment, buildings, goods, and services in a market economy?
  The poor
  Individuals and private businesses
  The wealthy
  Government
4.   What happens with "free enterprise"?
  Private entrepreneurs are free to get and use resources.
  Entrepreneurs are free to produce goods and services and sell them at a price they choose.
  Sellers are free to sell in markets of their choice.
  Consumers are free to buy any goods and services they choose.
  Workers are free to work wherever they choose.
  All of the above
5.   What is the driving force of a market economy?
  A motive of self-interest
  Wanting to put government first
  The richest citizens bearing the burden of taxes and government services
  A motive of helping others
6.   What pressure limits the abuse of economic power in a market economy?
  Price
  Supply
  Demand
  Competition

 

Name _____________________________
Date ___________________
Characteristics of a Market Economy

7.   Instead of government planning, what structures a market economy?
  Types of money available
  Markets and prices
  Fair business practices
  Consumers and producers
8.   Which of these is not an advantage of a market economy?
  Individual risk resulting in higher gains for individuals and society
  More civil and political freedoms
  Lower quality and higher prices
  More choices in goods and services for consumers

 

Name _____________________________
Date ___________________
Characteristics of a Market Economy
List the main characteristics of a market economy.

















 

Name _____________________________
Date ___________________
Characteristics of a Market Economy
Discuss some disadvantages of a market economy.

















 

Name _____________________________
Date ___________________
Characteristics of a Market Economy
Do you feel government should have a bigger role in the U.S. economy? Explain why or why not, giving specific examples.

















 

Characteristics of a Market Economy
By Cindy Grigg
  



outcomes
marketplace
significant


regulate
self-interests
outcome


seek
efficient
free-enterprise


free-market
political
obtain


regulation
undesirable
self-regulating


self-adjusting


Directions:  Fill in each blank with the word that best completes the reading comprehension.

     A market economy is a type of economic system where supply and demand (1)  _______________________   the economy, rather than government intervention. A true free market economy is an economy in which all resources are owned by individuals. The decisions about the allocation of those resources are made by individuals without government intervention. There are no completely "(2)  _______________________  " or market economies. The United States has more characteristics of a market economy than a command economy, where a government controls the market. In a market economy, the producer gets to decide what to produce, how much to produce, what to charge customers for those goods, and what to pay employees. These decisions in a (3)  _______________________   economy are influenced by the pressures of competition, supply, and demand.
     One of the most important characteristics of a market economy, also called a free enterprise economy, is the role of a limited government. Most economic decisions are made by buyers and sellers, not the government. A competitive market economy promotes the (4)  _______________________   use of its resources. It is a (5)  _______________________   and (6)  _______________________   economy. No (7)  _______________________   economic role for government is necessary. However, a number of limitations and (8)  _______________________   (9)  _______________________   associated with the market system result in an active, but limited economic role for government.
     In a market economy, almost everything is owned by individuals and private businesses- not by the government. Natural and capital resources like equipment and buildings are not government-owned. The goods and services produced in the economy are privately owned. This private ownership, combined with the freedom to negotiate legally binding contracts, permits people to (10)  _______________________   and use resources as they choose.
     A market economy has freedom of choice and 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. Consumers are free to buy the goods and services that best fill their wants and needs. Workers are free to (11)  _______________________   any jobs for which they are qualified.
     A market economy is driven by the motive of self-interest. Consumers have the motive of trying to get the greatest benefits from their budgets. Entrepreneurs try to get the highest profits for their businesses. Workers try to get the highest possible wages and salaries. Owners of capital resources try to get the highest possible prices from the rent or sale of their resources. This "invisible hand" of self-interest is the driving force of a market economy.
     Competition is another important characteristic of a market economy. Instead of government (12)  _______________________  , competition limits abuse of economic power by one business or individual against another. Each competitor tries to further his own self-interest. This economic rivalry means that buyers and sellers are free to enter or leave any market. It also means that buyers and sellers are acting independently in the (13)  _______________________  . When businesses compete for customers, they want to sell their goods or services at the lowest possible price while still earning a profit for themselves. Consumers compete for goods and services. If the supply of a needed good or service is low, the consumer must pay a higher price. Consumers must compete to get goods or services by paying more or going out of their way to buy the products they need or want.
     A system of markets and prices working together are the structure of a market economy, not the central planning by government. A market brings buyers and sellers together. The wants of buyers and sellers are registered on the supply and demand sides of various markets. The (14)  _______________________   of these choices is a system of product and resource prices. Prices are the guideposts on which buyers and sellers make and revise their free choices in furthering their (15)  _______________________  .
     The advantages of a market economy are many. Competition insures 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. Economists Friedrich von Hayek and Milton Friedman believe that the more economic freedom that is available, the more civil and (16)  _______________________   freedoms a society will enjoy.
     Some disadvantages are that only those people with resources may take part in a market economy. There is often an income gap. People with the most resources (money) keep getting richer, while people with few resources get poorer. Some services, like railroads and airlines, have problems offering their services while maintaining low prices. In these cases, government may step in to keep the services available at a reasonable cost to consumers because the service benefits the society as a whole. Some critics of market economies say that greed is the driving principle. They think that markets should not be allowed to profit while causing potential harm to the environment by using up all available resources and polluting the planet.


Copyright © 2011 edHelper

 

Name _____________________________
Date ___________________
Characteristics of a Market Economy

1.   What is a market economy?
  An economic system regulated by supply and demand, not the government
  A government-regulated economic system
  An economic system taking from each according to ability and giving to those in need
  An economic system with only the most educated having the power
2.   Who makes the decisions in a market economy?
  Buyers and sellers
  The wealthy
  The educated
  The government
3.   Who owns most of the resources, equipment, buildings, goods, and services in a market economy?
  Government
  The poor
  The wealthy
  Individuals and private businesses
4.   What happens with "free enterprise"?
  Private entrepreneurs are free to get and use resources.
  Entrepreneurs are free to produce goods and services and sell them at a price they choose.
  Sellers are free to sell in markets of their choice.
  Consumers are free to buy any goods and services they choose.
  Workers are free to work wherever they choose.
  All of the above
5.   What is the driving force of a market economy?
  Wanting to put government first
  A motive of helping others
  The richest citizens bearing the burden of taxes and government services
  A motive of self-interest
6.   What pressure limits the abuse of economic power in a market economy?
  Supply
  Demand
  Price
  Competition

 

Name _____________________________
Date ___________________
Characteristics of a Market Economy

7.   Instead of government planning, what structures a market economy?
  Consumers and producers
  Types of money available
  Fair business practices
  Markets and prices
8.   Which of these is not an advantage of a market economy?
  Lower quality and higher prices
  More choices in goods and services for consumers
  Individual risk resulting in higher gains for individuals and society
  More civil and political freedoms

 

Name _____________________________
Date ___________________
(Key 1 - Answer ID # 0644133)
Circle the correct way to divide the word into syllables.
1.marke-tpla-cemark-etplacemar-ket-placemarket-place
2.neg-ot-i-a-teneg-o-tia-tene-go-ti-ateneg-ot-iate
3.sig-nif-i-cantsign-ifi-c-antsign-ifi-cantsign-ifi-c-a-nt
4.cons-ume-rcons-umercon-sum-erconsumer
5.regu-l-atereg-u-lateregu-latere-gul-ate
6.enterpriseenter-priseent-erp-ris-een-ter-prise
7.undes-ira-bleundesi-ra-bleundesirab-leun-de-sir-able
8.civ-i-lc-ivilc-ivi-lciv-il
9.struc-turestru-cturestructurest-ruct-ure
10.princ-ip-lepr-incip-leprin-ci-pleprin-cip-le
11.outcomeout-comeout-c-omeou-tc-ome
12.efficienteff-ic-ientef-fi-cienteff-icient
13.var-i-ousvar-i-ousva-ri-o-usvar-io-us
14.dem-andde-m-an-ddemandde-mand
15.s-eekseeks-ee-kse-ek
16.r-egulationreg-u-la-tionregul-at-ionregulation
17.re-as-ona-blereasona-blerea-son-abler-eas-ona-ble

 

Characteristics of a Market Economy - Answer Key
1    An economic system regulated by supply and demand, not the government
2    Buyers and sellers
3    Individuals and private businesses
4    All of the above
5    A motive of self-interest
6    Competition
7    Markets and prices
8    Lower quality and higher prices


 

Characteristics of a Market Economy
By Cindy Grigg
  
Answer Key

     A market economy is a type of economic system where supply and demand (1)  regulate   the economy, rather than government intervention. A true free market economy is an economy in which all resources are owned by individuals. The decisions about the allocation of those resources are made by individuals without government intervention. There are no completely "(2)  free-enterprise  " or market economies. The United States has more characteristics of a market economy than a command economy, where a government controls the market. In a market economy, the producer gets to decide what to produce, how much to produce, what to charge customers for those goods, and what to pay employees. These decisions in a (3)  free-market   economy are influenced by the pressures of competition, supply, and demand.
     One of the most important characteristics of a market economy, also called a free enterprise economy, is the role of a limited government. Most economic decisions are made by buyers and sellers, not the government. A competitive market economy promotes the (4)  efficient   use of its resources. It is a (5)  self-regulating   and (6)  self-adjusting   economy. No (7)  significant   economic role for government is necessary. However, a number of limitations and (8)  undesirable   (9)  outcomes   associated with the market system result in an active, but limited economic role for government.
     In a market economy, almost everything is owned by individuals and private businesses- not by the government. Natural and capital resources like equipment and buildings are not government-owned. The goods and services produced in the economy are privately owned. This private ownership, combined with the freedom to negotiate legally binding contracts, permits people to (10)  obtain   and use resources as they choose.
     A market economy has freedom of choice and 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. Consumers are free to buy the goods and services that best fill their wants and needs. Workers are free to (11)  seek   any jobs for which they are qualified.
     A market economy is driven by the motive of self-interest. Consumers have the motive of trying to get the greatest benefits from their budgets. Entrepreneurs try to get the highest profits for their businesses. Workers try to get the highest possible wages and salaries. Owners of capital resources try to get the highest possible prices from the rent or sale of their resources. This "invisible hand" of self-interest is the driving force of a market economy.
     Competition is another important characteristic of a market economy. Instead of government (12)  regulation  , competition limits abuse of economic power by one business or individual against another. Each competitor tries to further his own self-interest. This economic rivalry means that buyers and sellers are free to enter or leave any market. It also means that buyers and sellers are acting independently in the (13)  marketplace  . When businesses compete for customers, they want to sell their goods or services at the lowest possible price while still earning a profit for themselves. Consumers compete for goods and services. If the supply of a needed good or service is low, the consumer must pay a higher price. Consumers must compete to get goods or services by paying more or going out of their way to buy the products they need or want.
     A system of markets and prices working together are the structure of a market economy, not the central planning by government. A market brings buyers and sellers together. The wants of buyers and sellers are registered on the supply and demand sides of various markets. The (14)  outcome   of these choices is a system of product and resource prices. Prices are the guideposts on which buyers and sellers make and revise their free choices in furthering their (15)  self-interests  .
     The advantages of a market economy are many. Competition insures 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. Economists Friedrich von Hayek and Milton Friedman believe that the more economic freedom that is available, the more civil and (16)  political   freedoms a society will enjoy.
     Some disadvantages are that only those people with resources may take part in a market economy. There is often an income gap. People with the most resources (money) keep getting richer, while people with few resources get poorer. Some services, like railroads and airlines, have problems offering their services while maintaining low prices. In these cases, government may step in to keep the services available at a reasonable cost to consumers because the service benefits the society as a whole. Some critics of market economies say that greed is the driving principle. They think that markets should not be allowed to profit while causing potential harm to the environment by using up all available resources and polluting the planet.


Answers to Reading Comprehension Questions

1    An economic system regulated by supply and demand, not the government
2    Buyers and sellers
3    Individuals and private businesses
4    All of the above
5    A motive of self-interest
6    Competition
7    Markets and prices
8    Lower quality and higher prices

 

Answer Key
1.marke-tpla-cemark-etplacemar-ket-placemarket-place
2.neg-ot-i-a-teneg-o-tia-tene-go-ti-ateneg-ot-iate
3.sig-nif-i-cantsign-ifi-c-antsign-ifi-cantsign-ifi-c-a-nt
4.cons-ume-rcons-umercon-sum-erconsumer
5.regu-l-atereg-u-lateregu-latere-gul-ate
6.enterpriseenter-priseent-erp-ris-een-ter-prise
7.undes-ira-bleundesi-ra-bleundesirab-leun-de-sir-able
8.civ-i-lc-ivilc-ivi-lciv-il
9.struc-turestru-cturestructurest-ruct-ure
10.princ-ip-lepr-incip-leprin-ci-pleprin-cip-le
11.outcomeout-comeout-c-omeou-tc-ome
12.efficienteff-ic-ientef-fi-cienteff-icient
13.var-i-ousvar-i-ousva-ri-o-usvar-io-us
14.dem-andde-m-an-ddemandde-mand
15.s-eekseeks-ee-kse-ek
16.r-egulationreg-u-la-tionregul-at-ionregulation
17.re-as-ona-blereasona-blerea-son-abler-eas-ona-ble