☰ Contents · Economics

Market economy

Lessons 30 · 1 lessons · E. Sariqov, B. Khaydarov. Foundations of Economics, Grade 8. “Huquq va Jamiyat” Publishing House, Tashkent, 2019
30

The market economy

Textbook: pp. 124–127
GoalLists the main features of a market economy (private property, free activity and prices, profit motive, competition), explains how the market answers the three basic questions, and compares planned, market and mixed economies.
New words
market economy: an economic system based on private ownership in which most decisions are made through the market · bozor iqtisodiyotifree prices: prices formed by demand and supply · erkin narxlarprofit motive: the drive to earn more that encourages enterprise and innovation · foydaga intilishmixed economy: a system combining market forces with the state’s regulating and social role · aralash iqtisodiyot
Explanation

Every economy answers three questions: what to produce, how to produce and for whom. In a market economy the market mainly answers them: whatever buyers pay for is produced; the firm that chooses the low-cost method wins in competition; and goods go to those who can pay. Its main features are the leading role of private property, free economic activity, free prices formed by demand and supply, the drive for profit, and competition. Profit is the difference between revenue and costs; it pushes the entrepreneur toward innovation. Monopoly is contrary to a market economy because it removes competition. In a centrally planned economy the centre makes the main decisions; in practice it adapted slowly to change. A pure market economy is not free of flaws either: it cannot fully solve problems such as unemployment, income gaps and monopoly by itself. That is why many countries have a mixed economy: the state sets laws, protects competition and helps the less well-off.

Worked examples
A woman’s workshop sewed 60 dresses in a month and sold each for 250 000 so‘m. Revenue is 60 · 250 000 = 15 000 000 so‘m. Costs (fabric, wages, rent) were 11 400 000 so‘m. Profit: 15 000 000 – 11 400 000 = 3 600 000 so‘m. Profit encourages the entrepreneur to expand.
The question “what?”: if cold drinks keep selling in a city and hot juice is bought less, producers make more cold drinks. “How?”: one factory with new equipment produces more cheaply. “For whom?”: for buyers who can pay the price. Market signals direct these decisions.
Class activity

“Economic systems”: groups draw a table: columns – planned, market, mixed economy; rows – property, price, who decides, role of the state. The table is filled in and explained to the class.

Practice
1
How is the question “For whom to produce?” answered in a market economy?
2
A shop earned revenue of 9 000 000 so‘m in a month and its costs were 7 200 000 so‘m. How many so‘m is the profit?
3
What percent of revenue is the profit? (1 800 000 so‘m out of 9 000 000)
4
If only one bread factory is left in a town and new bakeries are not allowed to open, which features of a market economy are broken and what do buyers lose?