Basic Characteristics of a Market Economy

A.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.

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.

C.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.

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.

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.

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.

F. Limited Government  The government’s regulatory role is restricted by constitutional or legal limits. Defining and enforcing property rights is an obligation of government in a market system.