The role of government in a market economy


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The role of government in a market economy

  1. 1. Characteristic of a Market Economy Ms. Ross
  2. 3. Private Property <ul><li>Individuals and private businesses own most land and capital goods. </li></ul><ul><li>Ownership of property provides incentives to care for property and invest in property. </li></ul><ul><li>Why do we have so few whales and so many chickens? </li></ul>
  3. 4. Free Enterprise <ul><li>Low barriers to entering and exiting a market or starting a business </li></ul><ul><li>Consumer and worker sovereignty </li></ul>
  4. 5. Self-interest <ul><li>We all seek our own self-interest in making choices. </li></ul><ul><li>The Wealth of Nations (1776) – Adam Smith, Father of Capitalism </li></ul><ul><li>“Invisible hand” of the Marketplace </li></ul>
  5. 6. Adam Smith <ul><li>“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” </li></ul>
  6. 7. Competition <ul><li>Competition among sellers insures fair market prices. </li></ul><ul><li>Has brought us great variety of products at competitive prices. </li></ul><ul><li>Sellers must be productive in order to be competitive. </li></ul><ul><li>Competition among buyers prevents any one buyer from controlling prices. </li></ul>
  7. 8. System of Markets and Prices <ul><li>The forces of supply and demand, not the government, determines prices. </li></ul>
  8. 9. Limited Government <ul><li>There is a limited but important role for government to play in our economy. </li></ul>
  9. 10. What is an appropriate role for government in a free market?
  10. 11. Laissez-faire system <ul><li>A Pure Market or laissez-faire system means that government doesn’t interfere in economic activities and lets the economy run itself. </li></ul>
  11. 12. The Role of Government in a Market Economy <ul><li>Provide a Legal System to make and enforce laws and to protect private property rights. </li></ul><ul><li>Provide Public Goods that individuals or private businesses would not provide. </li></ul><ul><li>Correct Market Failures such as external costs and economic slowdown (unemployment). </li></ul>
  12. 13. <ul><li>d. Maintain Competition by regulating monopolies. </li></ul><ul><li>e. Redistribute Income by taxing those with larger incomes and helping those in need. </li></ul><ul><li>f. Stabilize the Economy by reducing unemployment and inflation, and promoting economic growth. </li></ul>
  13. 14. Market Values <ul><li>Discipline </li></ul><ul><li>Honesty and Trustworthiness </li></ul><ul><li>Tolerance </li></ul><ul><li>Cooperation </li></ul><ul><li>Courtesy </li></ul><ul><li>Enterprise </li></ul><ul><li>Responsibility </li></ul>
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