Characteristics of a
Market Economy
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Market Economy
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• An economy in which ordinary people
decide what, how, and for whom to produce
goods and services.
• Based on economic freedom, trade, private
property, profit, and competition
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Property Rights
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• A property right is the exclusive authority to
determine how a resource is used, whether
that resource is owned by government or by
individuals
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Property Rights
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• The three basic elements of private property
are:
(1) exclusivity of rights to choose the use of
a resource,
(2) exclusivity of rights to the services of a
resource, and
(3) rights to exchange the resource at
mutually agreeable terms
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Property Rights Example
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• The owner of an apartment with complete property rights
to the apartment has the right to determine whether to rent
it out and, if so, which tenant to rent to; to live in it
himself; or to use it in any other peaceful way. That is the
right to determine the use or resource.
• If the owner rents out the apartment, he also has the right
to all the rental income from the property. That is the right
to the services of the resources (the rent).
• A private property right includes the right to delegate, rent,
or sell any portion of the rights by exchange or gift at
whatever price the owner determines (provided someone is
willing to pay that price) These are the rights to exchange
the resource at mutually agreeable terms.
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Intellectual Property
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• literary and artistic works
• symbols, images, names, and designs used
in commerce
• the information and original expressions of
creative individuals
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Intellectual Property
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KEY FORMS OF INTELLECTUAL PROPERTY
• The key forms of intellectual property are patents,
copyrights, trademarks, and trade secrets.
• Because intellectual property shares many of the
characteristics of real and personal property,
associated rights permit intellectual property to be
treated as an asset that can be bought, sold,
licensed, or even given away at no cost.
• IP laws enable owners, inventors, and creators to
protect their property from unauthorized uses.
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Copyright
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• Copyright is a legal term describing the economic
rights given to creators of literary and artistic
works, including the right to reproduce the work,
to make copies, and to perform or display the
work publicly.
• The U.S. Copyright Office serves as a place where
claims to copyright are registered and where
documents relating to copyright may be recorded
when the requirements of the U.S. copyright law
are met.
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Patent
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• Under the terms of this social contract, the
inventor is given the exclusive right to
prevent others from making, using, and
selling a patented invention for a fixed
period of time – in most countries, for up to
20 years – in return for the inventor's
disclosing the details of the invention to the
public.
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Trade Secrets
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• Any information that may be used in the operation
of a business and that is sufficiently valuable to
afford an actual or potential economic advantage
is considered a trade secret.
• Examples of trade secrets can be formulas for
products, such as the formula for Coca-Cola
• Although secrecy is expensive to maintain, large
companies rely heavily on it when patents are not
available.
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Trademarks
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• Trademarks are commercial source
indicators, distinctive signs that identify
certain goods or services produced or
provided by a specific person or enterprise.
• Throughout most of the world, trademarks
must be registered to be enforceable, and
registrations must be renewed.
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Freedom of Enterprise
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• Freedom of enterprise means that
entrepreneurs and businesses have the
freedom to obtain and use resources, to
produce products of their choice, and to sell
these products in the markets of their
choice.
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Competition
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• The freedom to choose from several
alternatives
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Competition
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1. Large numbers of sellers mean that no
single producer or seller can control the
price or market supply.
2. Large number of buyers means that no
single consumer or employer can control
the price or market demand.
3. Depending upon market conditions,
producers can enter or leave industry easily.
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Consumer Choice
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• Consumers are free to spend their income in
such a way as to best satisfy their wants
(consumer sovereignty).
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Limited Role of Government
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• Government's role in a free-market
economy also includes protecting private
property, enforcing contracts, and
regulating certain economic activities.
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Sources
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• http://www.econlib.org/library/Enc/PropertyRights.html
• http://encarta.msn.com/encyclopedia_761579938/FreeMarket_Economy.html
• http://www.america.gov/st/econenglish/2008/April/20080429213326eaifas0.2220423.html
• http://www.harpercollege.edu/mhealy/eco212i/lectures/cap
/cap.htm
• http://www.harpercollege.edu/mhealy/eco211/lectures/capt
ism/ch4.htm
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