Market Economies Objective In this lesson, you will analyze how market economies differ from other major economic systems Glossary TERM DEFINITION private sector All of the for-profit businesses that are owned by individuals, not the government per capita GDP The total quantity of goods produced in a country divided by its total population standard of living A measure of a person's quality of life infrastructure The physical foundation created for the benefit of a country's citizens, such as roads, buildings, and waterworks liberalization A reduction in the number of laws or government restrictions public sector called the state sector in some countries, the part of the economy that provides government goods and services self-interest A concern for one's personal gain competition a situation in which a person strives to perform better and be more successful than someone else invisible hand the unobservable force in a free market that helps demand and supply of goods reach equilibrium laissez-faire French for "allow to do," a philosophy opposing government interference in the economy unless necessary entrepreneur A person who owns and runs a business All the money available in an economy money supply capital The buildings, equipment, and human skills used to produce goods and services credit Money borrowed with a promise to pay it back later with interest rule of law A principle of governance in which individuals and government are accountable to the country's law Copyright © 2019 Edmentum Inc. All Rights Reserved. Introduction As you watch the introduction video, fill out the following table. Economy Attributes Classifications Command control over the production and Government has complete _________ Economies goods distribution of _________. Traditional customs and traditions, Economic activities are rooted in age-old __________ Economies farming and ____________. hunting such as _____________ Market Economies The production and supply of goods is dependent on the forces of demand and ____________. supply _____________ World Economies economy The extent to which governments control the _________________ varies from country to country. A freedom government can influence how much personal, economic, and political _________________ citizens have. interfere The two scenarios in the Lesson Activity showed how a government could ________________ with an individual's economic decisions. They also depicted how _______________ command economies and _________________ market ______________ economies work. mixed mixed Most countries have a ____________ economy. A ______________ economy is an economic system that has government many elements of a market economy but is influenced by the _______________________ as well. The private diagram shows three examples of varying amounts of control over the ________________ sector. Copyright © 2019 Edmentum Inc. All Rights Reserved. Fill in the relative positions of the US, Indian, and Chinese governments Chinese government Indian government The US Government Less Control More Control Mixed Economy (over the private sector) (over the private sector) Market Economies Command Economies (Socialist, Communist) US Economy China Economy • • command aligns with a ________________ gives more economic economy more than a freedom to businesses ______________ market economy ____________ and individuals with few gives economic freedoms, restrictions __________________ but regulations and restrictions accompany ______________ those freedoms • • growing number of has a ____________ • referred to by economists as any of these economic systems: o free enterprise o free market o capitalist market economy features, but maintains strong command economy elements as well Copyright © 2019 Edmentum Inc. All Rights Reserved. Economic Indicators stronger Countries with market-based economies are economically ________________ than those with command economies. We can confirm this claim by looking at the indicators of a country’s economic health. Per capita GDP The Private Sector The total quantity of goods produced in a country divided by its total population. Anything owned and operated by individuals Infrastructure basic facilities a country needs for an economy and society to function. Budget Deficit when a government's spending exceeds its income Economic Liberalization when the government reduces control over private enterprises Economic Development The steps taken by the government to improve its citizens’ quality of life The Public Sector part of a economy fully controlled by the government strong government control. Recently, As seen in the Lesson Activity, some countries historically have had __________ toward market-based economies. however, these countries are shifting ___________ The Benefits of the Market The Scottish philosopher Adam Smith (1723–1790) discusses many benefits of open market Wealth Nations economies in his book The ______________ of _________________. Published in 1776, the book is one of the earliest studies of economic systems. Today, many people consider it a fundamental work in self interest and explains how it helps a free classical economics. In his book, Smith defends _________-____________ market improve the economic condition of a nation. Copyright © 2019 Edmentum Inc. All Rights Reserved. Ideas from Wealth of Nations Competition is encouraged: According to Adam Smith’s invisible hand demand and theory, forces such as __________ supply play an important role in guiding __________ • regularity force in an economy. Competition is a __________ • unfair practices at bay. Competition keeps _______ the market. In a market-based economy, the • motivating Self-interest is a _________________ force. price of scarce goods and services is The invisible hand: competition Self-interest and _____________________ act • together as an invisible hand, guiding businesses in a market-based economy. low goods is high and the supply is ___________. Likewise, the price of goods and services that low are abundantly available is relatively ______. This is because the government sets minimal, Government interference is discouraged: • high __________ because the demand for scarce if any, regulations on prices and the amount Smith was also a strong advocate of minimal ________________ government interference in the of goods that companies supply. economy. price of a good. The level of competition also determines the __________ How Much Government Involvement? government Today, all countries have some level of ____________________ intervention. Different economic economists propose different levels of government intervention for the __________________ welfare of a nation. Friedrich von Hayek • Government intervention erodes __________ economic and John Maynard Keynes • political rights. • Minimal government • Government intervention Milton Friedman • Government control of the is essential for _______________ money supply will increase economic stability. prices the ____________ of Government should use its goods and services. intervention gives more powers to control economic freedom. spending by individuals and businesses. Copyright © 2019 Edmentum Inc. All Rights Reserved. amount Many opinions exist on the ___________ of government intervention that is Key Idea suitable for an economy. But we can be capitalist certain that a _______________, or market-based, economy ensures more benefits to its citizens. As people enjoy more economic freedom, they will demand more political freedoms. incentives for people to use their _________ skills and ________________ creativity Market economies offer ________________ to start their own businesses and use resources wisely. Free Enterprise Entrepreneurs _________________________ are people who start businesses. The term applies to anyone who starts any small ___________ store form of business, whether it’s a __________ or a big company. To successfully run businesses, support from the government. entrepreneurs need both a free market and __________ credit to obtain ____________ capital and other factors, such as labor and raw Entrepreneurs also need ________ borrowed from a financial institution. materials. Credit is any money _______________ security Entrepreneurs must provide certain _______________ or collateral to get credit. Under a market-based security property rights. Entrepreneurs can use their private property as __________ economy, individuals have ____________ collateral to obtain credit. or _______________ safely rule In a market-based economy, entrepreneurs can _____________ conduct their business because the ________ law protects them. of _______ profit motivates entrepreneurs. They are willing to undertake _________ risks In a market-based economy, __________ competition One way to beat this to acquire profits. But a market-based economy also introduces __________________. innovate and improve their products. So profit making is also a ______________ motivating competition is to ______________ factor for innovation. Summary What have influential economists believed throughout history? What are the advantages of market economies? Copyright © 2019 Edmentum Inc. All Rights Reserved.
