Chapter 13 - Market economic system

private sector

businesses owned by individuals or shareholders

public sector

the part of the economy controlled by the government

privatisation

the transfer of a business, industry, or service from public to private ownership and control

market economic system

an economic system where two forces, known as supply and demand, direct the production of goods and services (role of government is to oversee and enforcing the principles of demand and supply)

advantages of market economic system

• responsive to changes in consumer demand

• competition promotes efficiency and low prices

• quality is high and innovation is encouraged

disadvantages of market economic system

• market failure occurs when market forces don’t work well

• differences in income and wealth are likely to widen over time

• environmental damage may result due to lack of government restrictions

market failure

market forces resulting in an inefficient allocation of resources