University of Jijel

Departement of Economic Sciences

Module : English for Specific Purposes Teacher :Manel.A

Level :M1_ Economics of Money and Banking Academic year :2023-2024

Economic Systems(2)

 THREE DEFINITIONS OF MARKETS

When you think of the word “market,” you probably think of a store where you buy
groceries. But in economics markets are defined more broadly and represent an important
structure to guide many economic activities. The language of economics has at least three
different uses of the word “market,” ranging from very concrete to very abstract, and the
appropriate meaning must be judged from the context in which it appears.

 Markets As Places To Buy And Sell

The most concrete and commonsense definition of a market is that it is a place where
people interact physically or virtually to buy and sell things. Historically markets have
been physical locations. For example, the Grand Bazaar in Istanbul, Turkey, or produce
stands in African villages have flourished for ages as meeting places for people who wish
to engage in exchange transactions.

market (first meaning): a place (physical or virtual) where there is a reasonable

expectation of finding both buyers and sellers for the same product or service

 Markets Defined By Product Categories

The term “market” can also refer to economic activity that is not confined to a single
place such as a shopping mall or a website. A more general definition is that a market is a
concept that covers broad product categories. For example, we can speak of the “real
estate market” in a particular city or even the entire country. We can define the market for
used cars, or the market for luxury goods. Economists often study trends in specific
markets, such as heating oil, try to forecast what might happen in the future, or advise on
the specifics of market structures.

market (second meaning): the interaction of buyers and sellers defined within the
bounds of broad product categories, such as the market for used cars or the real
estate market

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  “THE MARKET” As An Economic System

In the most abstract terms, people sometimes refer to markets as an economic system,
for example, describing the United States as having a “market economy”. In this
macroeconomic sense, a market economy is one that relies heavily on markets (according
to both our first and second definitions) to conduct economic activities.

A market economy, also known as a free-market economy or capitalism, is an economic

system where economic decisions and the pricing of goods and services are guided by the
interactions of citizens and businesses in the marketplace, without government
intervention. In this lecture, we will explore the key characteristics, benefits, challenges,
and implications of a market economy.

market (third meaning): an economic system (a “market economy”) that relies on

markets to conduct many economic activities

1. Characteristics of a Market Economy

A. Private Ownership of Resources
 In a market economy, most resources, including land, labor, and capital, are
privately owned and controlled by individuals and businesses.
 Private ownership encourages individuals to use resources efficiently and to seek
ways to maximize their own well-being.
B. Decentralized Decision-Making
 Economic decisions, such as what to produce, how much to produce, and for whom
to produce, are decentralized and made by individuals and businesses based on their
own interests and preferences.
 The price mechanism, determined by supply and demand in the market place,
guides these decisions.
C. Competition
 Competition is a key feature of a market economy, as it encourages businesses to
produce goods and services that are in demand and at prices that are competitive.
 Competition fosters innovation, efficiency, and consumer choice, leading to higher
quality products and lower prices.

D. Price System
 Prices play a crucial role in a market economy, serving as signals that convey
information about the scarcity of resources and the preferences of consumers.
 Prices also serve as incentives for producers to allocate resources efficiently and to
produce goods and services that maximize profits.
E. Limited Government Intervention

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 In a pure market economy, the government's role is limited to enforcing property
rights, contracts, and ensuring a level playing field for competition.
 However, most real-world economies have some degree of government
intervention, such as regulations, taxes, and public goods and services.
2. Benefits of a Market Economy
A. Efficiency
 Market economies are often praised for their efficiency in allocating resources, as
prices reflect the relative scarcity of goods and services and guide producers and
consumers to make optimal decisions.
 The profit motive encourages businesses to minimize costs and innovate, leading to
increased productivity and economic growth.
B. Innovation and Growth
 The competitive nature of a market economy fosters innovation, as businesses seek
to develop new products and technologies to gain a competitive advantage.
 Innovation drives economic growth and improves living standards over time.
C. Consumer Choice
 Market economies offer consumers a wide range of choices in goods and services,
allowing them to select products that best meet their needs and preferences.
 Consumer sovereignty, where consumer preferences determine the production of
goods and services, is a central feature of market economies.
3. Challenges of a Market Economy
A. Income Inequality
 While market economies can lead to economic growth and prosperity, they can also
result in income inequality, as some individuals and businesses may accumulate
wealth at the expense of others.
 Addressing income inequality requires policies that promote social mobility and
provide opportunities for all members of society.
B. Market Failures
 Market economies are susceptible to market failures, where the allocation of
resources is inefficient or does not result in the best outcome for society.
 Examples of market failures include monopolies, externalities, and public goods,
which may require government intervention to correct.

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 Text Based Activities

1- Match the word with its definitions :

1. Supply and a) The principle that self-interested individuals unknowingly

demand promote the interest of society as a whole when they pursue
their own self-interest..

2. Competition b) The rivalry among sellers trying to achieve such goals as

increasing profits, market share, and sales volume by
varying the elements of the marketing mix: price, product,
distribution, and promotion.

3. Invisible hand c) The interaction between the quantity of goods and services
producers are willing to supply and the quantity consumers
are willing to purchase.

4. Profit motive d) The force that drives individuals and businesses to improve
their material well-being.

2- Fill in the Blanks: Complete the sentences with the appropriate vocabulary term.
a. In a market economy, prices are determined by the forces of __________ and
__________.
b. The __________ is the idea that individuals pursuing their own self-interest can
benefit society as a whole.
c. __________ among businesses can lead to better products and lower prices for
consumers.
d. The market economic system relies on the __________ __________ to allocate
resources efficiently.
e. One of the key characteristics of a market economy is the role of __________ in
determining what goods and services are produced.
f. __________ __________ refers to the idea that individuals and firms can freely
buy and sell goods and services in the marketplace

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 g. The concept of __________ __________ suggests that markets tend to move
towards equilibrium, where supply equals demand.
h. __________ is a driving force in a market economy, encouraging individuals and
businesses to innovate and improve.

1- Sentence Correction:

a. The market economy is characterized by private ownership of resources and means

of productions.

b. Supply and demand are the forces that determines prices in a market economy.

c. Competition among businesses can leads to lower prices and better products.

d. In a market economy, individuals and firms are free to buy and sell goods and
services.