© National Council on Economic Education, New York, NY
Civics and Government: Focus on Economics, Unit 1, Lesson 1
Labor resources, natural resources, capital resources (e.g., equipment
and buildings), and the goods and services produced in the economy are
largely owned by private individuals and private institutions rather
than by government. This private ownership combined with the freedom to
negotiate legally binding contracts permits people, within very broad
limits, to obtain and use resources as they choose.
FREEDOM OF ENTERPRISE AND CHOICE
Private entrepreneurs are free to obtain and organize resources in the
production of goods and services and to sell them in markets of their
choices. Consumers are at liberty to buy that collection of goods and
services that best satisfies their economic wants. Workers are free to
seek any jobs for which they are qualified.
MOTIVE OF SELF-INTEREST
The "Invisible Hand" that is the driving force in a market economy is
each individual promoting his or her self-interest. Consumers aim to get
the greatest satisfaction from their budgets; entrepreneurs try to
achieve the highest profits for their firms; workers want the highest
possible wages and salaries; and owners of property resources attempt to
get the highest possible prices from the rent and sale of their
Economic rivalry means that buyers and sellers are free to enter or
leave any market and that there are buyers and sellers acting
independently in the marketplace. It is competition, not government
regulation, that diffuses economic power and limits the potential abuse
of that power by one economic unit against another as each attempts to
further its own self-interest.
SYSTEM OF MARKETS AND PRICES
Markets are the basic coordinating mechanisms in our type of economy,
not central planning by government. A market brings buyers and sellers
of a particular good or service into contact with one another. The
preferences of sellers and buyers are registered on the supply and
demand sides of various markets, and the outcome of these choices is a
system of product and resource prices. These prices are guideposts on
which participants in markets make and revise their free choices in
furthering their self-interests.
A competitive market economy promotes the efficient use of its
resources. As a self-regulating and self-adjusting economy, no
significant economic role for government is necessary. However, a number
of limitations and undesirable outcomes associated with the market
system result in an active, but limited economic role for government.