3 - SUPPLY, DEMAND, AND THE MARKET PROCESS

Abstract

This discusses supply, demand, and the market process. In a market economy, no individual or planning board tells the participants what to do. Markets are free, some would say competitive, in the sense that there are no legal restrictions limiting the entry of either buyers or sellers. The economic role of government is limited to defining property rights, enforcing contracts, protecting people from fraud, and similar activities that establish the rules of the game. Although centralized planning is absent, it does not follow that the participants are without direction. There are several possible criteria that could be used for rationing a limited amount of a good among citizens who would like to have more of it. If the criterion were first come, first served, goods would be allocated to those who were fastest at getting in line or to those who were most willing to wait in line. Competition is not unique to a market system. Rather, it is a natural outgrowth of scarcity and the desire of human beings to improve their conditions. Competition exists in both capitalist and socialist societies.