Market Economy

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Market EconomyA market or capitalist system contains six essential features. Main features of the market economy are: private property, freedom of choice and

enterprise, self-interest as the dominating motive, competition, reliance on the price system, a very limited role for government.1. Private property.The institution of private property is a major feature of capitalism. It means that individuals have the right to own, control and dispose of

buildings, machinery, and other natural and man-made resources. Man-made aids to production such as machines, factories, docks, oil refineries and road networks are known as capital. Private property not only confirms the right to own and dispose of real assets, it provides the owners of property with the right to income from that property in the form of rent, interest and profit.

2. Freedom of choice and enterprise.Freedom of enterprise means that individuals are free to buy and hire economic resources, to organize these resources for production, and to

sell their products in the markets of their own choice. Persons who undertake these activities are known as entrepreneurs and such people are free to enter and leave the industry.

Freedom of choice means that owners of land and capital may use these resources as they see fit. It also means that workers are free to enter (and leave) any occupations for which they are qualified. Finally it means that consumers are free to spend their incomes in any way they wish. The freedom of consumer choice is usually held to be the most important of these economic 'freedoms'. In the models of capitalism, producers respond to consumers preferences — they produce whatever consumers demand.

3. Self-interest.Since capitalism is based on the principle that individuals should be free, to do as they wish, it is not surprising to find that the motive for

economic activity is self-interest. Each unit in the economy attempts to do what is best for itself. Firms will act in ways which, they believe, will lead to maximum profits (or minimum losses). Owners of land and capital will employ these assets so as to obtain the highest possible rewards. Workers will tend to move to those occupations and locations which offer the highest wages.

Consumers will spend their incomes on those things which yield the maximum satisfaction.4. Competition.Economic rivalry or competition is another essential feature of a free enterprise economy. Competition, as economists see it, is essentially price

competition. The model of the market economy envisages a situation where, in the market for each commodity, there are large numbers of buyers and sellers. Each buyer and seller accounts for an insignificant share of the business transacted and hence has an influence on the market demand or market supply. It is the forces of total demand and total supply which determine the market price, and each participant, whether buyer or seller, must take this price as given since it is beyond his or her influence or control. In theory at least, competition is the regulatory mechanism of capitalism. It limits the use of economic power since no single firm or individual is large enough or strong enough to control a market and exploit the other buyers or sellers.

5. Markets and Prices.

Perhaps the most basic feature of the market economy is the use of the price mechanism for allocating resources to various uses. The price system is an elaborate system of communications in which innumerable free choices arc aggregated and balanced against each other. The decisions of producers determine the supply of a commodity; the decisions of buyers determine the price. A change in demand and supply cause changes in market prices.

The state plays little or no part in economic activity. The political authority has exercised some economic functions (e.g. controlling prices or levying taxation).

Market Economy Nowadays the market economy is a very important topic for conversation: we all are buyers and sellers, we all buy and sell

something, goods or qualification for a job.Every modern specialist must be good at discussing the features of the

market economy. There are six of them: private property

freedom of choice and enterpriseself-interest as the dominating motive

competitionreliance on the price system

a very limited role for governmentIn order to be good at discussing of the market economy you must

know the words, which are mostly difficult economic terms.

Let’s start.

Private property

private частный, личный

property собственность

feature характерная черта, свойство

to own владеть

to control управлять

to dispose распоряжаться

to provide обеспечивать

to income получать доход

real assets капитал, активы

rent рента, арендная плата

interest процент, процентный доход

profit прибыль, доход

Private propertyWhat do we think about when we hear the words

“private property”? Houses and flats, different things belonging to us, cars, country houses, money,

accounts in the banks

What else can we have in our private property?

Natural resources, man-made resources, docks, buildings, machinery, oil refineries, machines, factories, road networks.

What can we do with our private property?

We can own and control it, present to other people as a gift, get income, dispose it according to our desire in order to get or to obtain

profit, interest or rent

Can you explain what the word combination “real assets” means?

Private property

private частный, личный

property собственность

feature характерная черта, свойство

the right to own

to control

to dispose

building

machinery

natural resources

man-made resources

to give

to provide

to income

rent

interest

profit

Is private property a feature of the market economy?Is private property a feature of the market economy?

What rights does the owner of the property have?What rights does the owner of the property have?

In what forms does private property give income to its owner? In what forms does private property give income to its owner?

Freedom of choice and enterprise

choice выбор

enterprise предпринимательство

to hire нанимать

to enter поступать

to respond отвечать

fit подходящий, соответствующий

consumer потребитель

income доход

occupation род занятий, профессия

preference предпочтение

demand требование, спрос

Freedom of choice and enterprise

All units are free within the market economy.

buyers, sellers, owners, entrepreneurs, employees,

employers, workers, consumers, producers

What are they all free to do?

to buy, to sell, to hire, to organize resources for

production, to use land and capital, to enter and leave any

occupations, to spend incomes

Freedom of choice and enterprise

Freedom of enterpriseFreedom of enterpriseenterprise – предприятие,

предпринимательство

to buy

to hire

to organize

to sell

resources

What does freedom of enterprise mean?What does freedom of enterprise mean?Freedom of choiceFreedom of choice

owner

worker

consumer

producer

to enter

to leave

to use

to produce

to buy

to spend

income

land

capital

occupation

goods

What does freedom of choice mean?What does freedom of choice mean?

Self-interest as the dominating motive

self-interest личная выгода, заинтересованность

unit единица, элемент

to attempt пытаться, пробовать, делать попытку

to employ применять, использовать

to obtain получать

to yield приносить

loss потеря, убыток, ущерб

assets активы, имущество, средства, фонды

reward поощрение, вознаграждение

wage заработная плата

satisfaction удовлетворение

Self-interest as the dominating motive

What economic units do you know?What are they free to do within the market economy?

What is the aim of economic activity of every unit?to avoid losses

to get profitwage

assetsreward

satisfaction

Self-interest as the dominating motive

Motives for Economic Activityto do what is best

to get maximum profits

to get minimum losses

to obtain the highest rewards

to get highest wages

to yield maximum satisfaction

to satisfy the needs

to meet the requirements

Economic Units

Firms

Owners

Workers

Consumers

Producers

Employers

Is self-interest the only motive for economic activity?Is self-interest the only motive for economic activity?

Are the motives for economic activity the same for all units in the economy?Are the motives for economic activity the same for all units in the economy?

Competition

rivalry соперничество, конкуренция

competition конкуренция

essential существенный

feature характерная черта, свойство

regulatory mechanism механизм регулирования

to envisage рассматривать (вопрос)

to limit ограничивать

to exploit эксплуатировать, разрабатывать

to transact вести (дело), заключать (сделку)

insignificant незначительный

hence с этих пор, следовательно

enough достаточно

CompetitionCompetition is a situation in which people or organizations compete

with each other for something that not everyone can have. What kind of competition do we keep in mind when we speak about competition within the market economy?

price competition sport competition

some other kind of competition

What is it necessary to do in order to win price competition?What is it necessary to do in order to make the market price

attractive for the buyers?to use cheaper raw materials

to work out a new productto do serious changes in technology

to position the goods on the market at higher prices

Competition

What is competition?

What limitations does competition bring to every firm and individual?

essential feature of the market economy

regulatory mechanism

limitation of the use of economic power

to preventto prevent

to control the market

to exploit the buyers and sellers

Reliance on the price system

perhaps может быть, возможно

price mechanism механизм цен

elaborate тщательно продуманный

decision решение

supply снабжение, поставка, предложение

commodity товар, промышленное изделие

change изменение

demand спрос

to aggregate собирать в одно целое

to allocate размещать

to determine определять

to depend on зависеть от

to cause вызывать

Reliance on the price system

Is the most basic feature of the market economy price mechanism?

Is price mechanism used for allocating resources to various uses?

What resources are aggregated and balanced against each other by means of price mechanism?

houses and flatscars

moneynatural resources

wagesassets

rewardssatisfaction

Reliance on the price system

Supply of the goods

Decisions of buyers

Demand for the goods

depend(s) on

Decisions of

producers

Changes in demand

changes in supply

changes in market prices

Changes in market prices

determine

decisions of buyers

decisions of

producers

demand for the goods

supply of the goods

changes in demand

Changes in supply

Is there any difference between the two parts of the table?

Role of government

authority орган власти, администрация

levy взимать налог, облагать налогом

law and order правопорядок

taxation налогообложение

Role of government

May a state allow free play of market forces in the market?

What are market forces?

The market economy is a free system, but the pure market system has never existed.

The state has a lot of functions within the market economy:

providing social guarantees

army, law and order

taxation

state orders

regulation of foreign trade

Role of government

Economic Activity

planning

new product development

advertising

communication

sales

post-sales servicing

What is the purpose of economic activity of every economic unit?

Is the role of government limited?What are the functions of state within the market economy?

Economic Units

workers

producers

companies

firms

entrepreneurs

buyers and sellers

Market Economy

Self-interest Competition Price Market forces Property

1. a free system of trade in which prices and wages rise and fall without being controlled by the government.

2. the amount of money that you have to pay for something.3. a situation in which people or organizations compete with each

other for something that not everyone can have.4. a thing or things that are owned by somebody.5. the fact of somebody considering their own interests and of not

caring about things that would help other people.

Do you remember what these words mean?Write down into the table the numbers of the corresponding

definitions of the terms.

Market EconomyPrivate property is a main feature of the market economy. The owners of the property

have the right to own, control and dispose of buildings, machinery, and other natural and man-made resources. Private property provides the right to income from the property in the form of rent, interest and profit.

Freedom of enterprise is freedom to buy and hire economic resources, to organize them, and to sell their products in the markets. Freedom of choice is freedom of workers to enter and leave any occupations. Consumers are free to spend their incomes. Producers choose what to produce.

The motive for economic activity is self-interest. Each unit in the economy tries to do what is best: firms try to get maximum profits (or minimum losses). Owners try to obtain the highest possible rewards. Workers work there where they can have highest wages. Consumers spend their incomes on those things which yield the maximum satisfaction.

Competition is another feature of the market economy and the regulatory mechanism of capitalism. It limits the use of economic power in order to prevent to control a market and exploit the other buyers or sellers.

Price mechanism is the next feature of the market economy. The decisions of producers determine the supply of a commodity; the decisions of buyers determine the price. A change in demand and supply cause changes in market prices.

The state plays little or no part in economic activity. The political authority is controlling prices or levying taxation.

The lesson is over

Good luck!