Chapter 1 What Is Economics? 29
example, producers and sellers can also be con-
sumers. Businesses buy the goods and services
that other businesses produce. In the next chap-
ter, you will see how the government fi ts into
this picture.
You can gain a better understanding of
how the U.S. economy works by studying the
basic qualities of a market economy. These are
discussed in the following sections.
Four Qualities of a Market
Economy
Four unique qualities—private ownership,
profi t, free choices, and competition—characterize
a market economy. The dynamic combination of
these qualities explains many aspects of the inner
workings of the U.S. economy. A study of the law of supply and demand helps
to complete the picture.
Private Ownership and Control of Productive
Resources
Productive resources include the human and nonhuman resources
used to produce goods and services. In the U.S. economic system, citizens
and businesses own and decide how to use these resources. Businesses
invest in the equipment, labor, and land needed to produce goods and
services. They exercise the right to own private property. Individuals and
businesses can buy and sell property; they can use it or give it away. This
includes personal property such as clothes, cars, and electronics. It also
includes real estate and business enterprises.
The Profi t Motive
The promise of earning money inspires the worker, shop owner, man-
ufacturer, and investor to engage in economic activity. For businesses and
investors, profi t is the total amount of money earned after expenses are
subtracted from income. The profi t motive drives businesses to produce
goods and services to meet consumer demand.
For individuals, profi t comes in the form of income. Individuals sell
their productive resources, such as labor, ideas, land, and capital. In return,
they receive income or a return on their investments. This is what brings
people into the workforce and investors into the stock market.
If there were no opportunity to earn profi ts, the U.S. economy would
falter. Individuals would be less motivated to work. Investors would not
invest in businesses and provide the money needed to turn resources
into goods and services. Businesses would not grow and try to increase
sales. All businesses, from the corner grocery to a worldwide corporation,
Business
Development
Managers
Business development
managers plan strategies
to improve a company’s
performance and
competitive position. They
analyze, interpret, and
evaluate various types
of data in order to make
sound business decisions.
C
o
n
s
u
m
e
r
goods and
services
P
a
y
m
e
n
t
for
goods
and
services
Payment
for
labor,
land,a
ndcp
a
i
t
a
l
Labor,
land,
andc
a
pali
t
Producers/
sellers
Consumers/
workers
1-3
This chart shows the circular
flow of goods, services, and
money between producers/
sellers and consumers/
workers.