Business in the Market Economy

A market economy is one in which economic decisions and the pricing of goods and services are guided by how much people buy and sell. There is little government intervention or central planning. Competitive markets affect both buyers and sellers. Competition among sellers means lower prices for the consumer. Competition among buyers means higher prices for the consumer. The market economy thrives in the United States. Millions of independent consumers and businesses are answering these questions: What should be produced? How should it be produced? Who gets what is produced?

There are three types of business models.

• A sole proprietorship has one entrepreneur who controls the business, gets the profits and assumes any losses that the business makes.

• Partnerships have two or more owners. Profits and losses are shared among the partners.

• Corporations are large companies chartered and regulated by the government and owned by stockholders. People buy and sell shares of the company. The price of these shares changes as people buy and sell their stock. Some companies pay dividends or money to the shareholders, usually on a quarterly basis. To learn more about the stock market, go to http://wneo.org/LessonActivities/stockmarket/default.htm for a tutorial, activities and a stock market simulation for student use.

Entrepreneurs are the backbone of the market economy. The goal of the entrepreneur is to meet the needs of the consumer and to make a profit in doing so.

Other names for the market economy include price system, capitalism, laissez-faire (or hands-off) and free enterprise. It is important to know that in this system, prices in the marketplace depend on the balance between consumer desires and financial incentives for producers.