Profit Incentive Profit is the differences between a business’s total revenues and its total costs. The profit incentive is the desire that persuades entrepreneurs to establish new businesses or expand existing ones, improve products, and cut costs of production. In a market economy, the profit incentive spurs on efficiency, growth, and economic progress.

Competition Attempts by two or more individuals or organizations to acquire the same goods, services, or productive and financial resources. Consumers compete with other consumers for goods and services. Producers compete with other producers for sales to consumers.

Financial Institutions Banks, credit unions, pension funds, insurance companies, mutual fund companies, and other organizations that bring together savers and borrowers and buyers and sellers of stocks and bonds. Play an important role in fostering economic growth and employment of resources in a market economy.

Limited Role of Government Provide a legal system to enforce contracts and private property rights. Provide public goods that individuals and businesses would not provide. Correct Market Failure Maintain Competition Redistribute Income Stabilize the Economy by reducing unemployment and inflation, and promoting economic growth.

List of Characteristics Voluntary Exchange Private Property Price System Profit Incentive Competition Financial Institutions Limited Government