Have you ever walked through a busy street market? People push their way through crowds of others in order to reach the stalls first. The air is full of deafening shouts. Stall owners yell to advertise their goods. Buyers cry out their orders. It’s hard to imagine but behind this noisy confusion is a very logical economic theory: the market economy.
The market economy is sometimes called the free market. A free market is not controlled in any way by a government. It is also free from the influence of custom or tradition. In a free market the only reason why things are bought and sold is because there is a demand for them. Prices for goods and services are simply what people are prepared to pay. The market economy is not really controlled by anyone. It controls itself.
The street market where we began has many of the characteristics of the free market. Customers arrive at the market with a shopping list of things they need. They also come with an idea of how much they are prepared to pay. Stall owners sell what customers demand, and try to get the highest price they can for it. Supply and demand control what is on the market and how much it sells for. In the wider economy we are all customers and the stall owners are like companies.
The role of the company in the free market is to supply what people want. However companies need an incentive. The incentive is profit. There are two ways for companies to make a profit. The first way is to raise their prices. The second way is to reduce their production costs. And this brings us to two more features of the market economy: competition and technology.
Competition exists in a free market because, theoretically, anyone can be a producer. This means that companies have to compete with each other for a share of the market. Competition is good for consumers because it helps to control prices and quality. If customers aren’t happy with a product or service, or if they can’t afford it, they will go to a competitor.
Technology exists in a free market because producers need ways to reduce their costs. They cannot buy cheaper raw materials. Instead, they must make better use of time and labour. Technology is the use of tools and machines to do jobs in a better way. This helps companies produce more goods in less time and with less effort. The result: more profit.
People often think that most economies are free markets. However, at the macroeconomic level, a truly free market economy does not exist anywhere in the world. This is because all governments set limits in order to control the economy. Some governments set many limits, other governments set very few, but they all set some. For this reason, a true market economy is only theoretical. Nevertheless, many of the features of the market economy do exist in most societies today.
Task 2. Now read the text again and answer these questions in your own words.
1. Who controls a market economy?
2. Who decides what products are for sale in a free market?
3. What do companies want?
4. Why is competition a good thing?
5. Why does technology exist in the market economy?
6. Why are there no true market economies in the world today?
Writing
Write an essay comparing the traditional economy with the market economy. Discuss the advantages and disadvantages of each economy. Decide which is best in your opinion.
Remember, you should organize your ideas logically.
These phrases will help you: firstly, secondly, furthermore, however, on the other hand.
Paragraph 1
Introduce the subject by saying what a traditional economy is, and what a market economy is.
Paragraph 2
Say what the advantages and disadvantages of the traditional economy are.
Paragraph 3
Say what the advantages and disadvantages of the market economy are.
Paragraph 4
Conclude by saying what you think the best system is.
Write 200-250 words
II VARIANT
| Text 1. The Planned Economy |
