Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

The role of government in a market economy


Published on

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>