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Chapter 1 Introduction to Business and Economics
Market Economy
A market economy is one in which
individuals are free to make their own economic
decisions. It is also known as free enterprise or
private enterprise. The characteristics of a free
enterprise system are shown in Figure 1-6 and
include the following:
• Private property. Individuals have the right to
own property.
• Profit. Individuals and businesses have the
right to make a profit.
• Economic freedom. Individuals are free to
make their own economic decisions. They
can decide what to buy, when to buy, and
how to use what they have bought.
• Voluntary exchange. Individuals have the right
to buy and sell in a marketplace where prices
are freely set by the forces of supply and
demand.
• Competition. Businesses can compete to
sell goods and services and decide what to
produce, how to produce, and for whom to
produce.
People and businesses decide what and
how much to produce. They also choose what
to buy based on how much money they have.
The government does not set prices. Instead,
consumers in the marketplace determine
prices by how much they are willing to pay
for items. A market economy is also called a
consumer economy.
The United States has maintained the largest
market economy of the 20th and 21st centuries.
Capitalism is another name for the US economic
system. Capitalism is an economic system where
the economic resources are privately owned by
individuals rather than the government.
Mixed Economy
In a mixed economy, both the government
and individuals make decisions about economic
resources. Many economies are mixed, having
elements of both command and market
economies. In most countries, for example, public
roads are built and maintained by departments
of the government. The government also handles
law enforcement and national defense. However,
private businesses operate with little government
Goodheart-Willcox Publisher
Figure 1-6 The characteristics of a free enterprise system enable consumers in the marketplace to make
decisions.
Free
Enterprise
System
Profit
Economic
Freedom
Voluntary
Exchange
Competition
Private
Property