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No economic system is completely command
or completely market.
There’s a mixture of government in a market
economy.
There’s also a mixture of markets in a
command economy.
Hence the name . . . Mixed economy.
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Private property
◦ Individuals & private businesses, not government,
own most land & capital.
◦ Right to own property provides incentives to owners
to take care of property and to invest in it.
◦ It also encourages the efficient allocation of
resources and promotes economic growth.
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Free Enterprise
◦ Means that, within legal limits, individuals are free
to open businesses and to produce and sell the
goods and services of their choice.
◦ Individuals are also free to work where they want
and to buy the goods and services they want and to
buy them with their earnings.
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Self Interest
◦ Drives people to get the best job they can, get the most
for their money, to earn the most in their business.
◦ When everyone does this, resources are used to produce
goods/services everyone wants – a desirable outcome.
◦ Self interest is not the same as selfishness and does not
mean that people cannot and do not help others…
◦ People who act in their own self interest are guided by
“an invisible hand” to do what is best for society as a
whole (according to Adam Smith – The Wealth of
Nations)
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Competition
◦ Keeps prices in line with costs of production.
◦ If one seller raises prices in an attempt to earn
excessive profits, competition from other sellers
will drive the prices down.
◦ Pure competition assumes that sellers can easily
leave one business and easily enter another one.
◦ Competition among buyers prevents any one buyer
from controlling prices by refusing to buy
something.
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System of Markets and Prices
◦ Markets bring together buyers and sellers of
goods/services.
◦ In a market system forces of supply and demand,
not government, determine prices.
◦ If there is a surplus of good available at the going
price, price will fall.
◦ If there is a shortage of goods available at the
going price, the price will rise.
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Limited government.
◦ Although market economies can operate in most
respects without government interference, there are
important roles for government to pay.
◦ At a minimum, government is needed to define and
enforce property rights and to provide some goods
and services such as national defense that are not
provided efficiently by markets.