Market Economy Social 9 - Chapter 6

Market Economy No government involvement in economic decisions; private firms account for all production Consumers decide WHAT should be produced. They do this through the purchases they make Businesses determine HOW the products will be produced. They must be competitive WHO buys the products? The people with the most money are able to buy more goods and services

MARKET ECONOMY (Capitalism) Decisions about scarcity should be made free from govt. control. Economic forces (price system/supply & demand) in the market should answer the three economic questions. In “laissez faire economics”, the government should adopt a “hands off” policy when it comes to economic decisions. Pure Price System Decentralized Laissez Faire Free Enterprise Free Market Private Enterprise

Market economy cont’d… Competition and profit motive find the most efficient and innovative methods of production. Values individualism and self-interest. Individuals can best achieve their goals if they are allowed to have private ownership. Dollar voting: An analogy used to explain how the purchasing choices of consumers affect which products will continue to be produced and supplied to the market Every $ paid for a particular product is considered a “dollar vote” for that product

SUPPLY & DEMAND Careers Types of cars What happens when demand exceeds supply? What happens when supply exceeds demand? How does supply and demand affect choices such as… Careers Types of cars Types of restaurants/food(I.e. Lobster) What are some recent examples of instances where demand exceeded supply? What were the results?

Advantages Disadvantages Market gives producer incentive Market provides incentive to hire skilled labor Wide variety of goods and services are available Competition encourages good quality goods Productivity is rewarded by profits Market economy fosters self-reliance It is possible to become rich Consumers can be manipulated by advertising Prices and incomes may not reflect what is best for society Boom & bust cycle Some firms try to monopolize markets; conspiring & price fixing Extreme income inequality can exist Environmental problems Job security