Market Economies

A market is any situation that brings together buyers and sellers of goods or services. Buyers and sellers can be either individuals or businesses. Market economies are based on private enterprise: the means of production (resources and businesses) are owned and operated by private individuals or groups of private individuals. Businesses supply goods and services based on demand. Which goods and services are supplied depends on what products businesses think will bring them the most profit. The more a product is demanded by consumers or other businesses, the higher the price businesses can charge, and so the more of the product will be supplied. Consumer demand depends on peoples’ incomes. A person’s income is based on his or her ownership of resources (especially labor). The more that society values the person’s output, the higher the income the person will earn (think Beyoncé or Stephen Curry).

Supply, Demand, and Government Intervention

In a market economy, decisions about what products are available and at what prices are determined through the interaction of supply and demand. A competitive market is one in which there is a large number of buyers and sellers, so that no one can control the market price. A free market is one in which the government does not intervene in any way. No country has a completely free market economy where businesses operate without government regulation of some kind. Examples of countries that are considered to have free market economies include the United States, Singapore, Ireland, and New Zealand.

Price controls are an example of a way that a government can intervene in the market by setting maximum or minimum prices for goods or services. Governments implementing a minimum wage, the price of labor, is an example of a price control. When government intervenes, the market outcomes will be different from those that would occur in a free and competitive market model.