United States ECONOMY! (743053), страница 2
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A basic principle in every economic system—even one as large and wealthy as the U.S. economy—is that few, if any, individuals ever satisfy all of their wants for goods and services. That means that when people buy goods and services in different markets, they will not be able to buy all of the things they would like to have. In fact, if everyone did have all of the things they wanted, there would be no reason for anyone to worry about economic problems. But no nation has ever been able to provide all of the goods and services that its citizens wanted, and that is true of the U.S. economy as much as any other.
Scarcity is also the reason why making good economic choices is so important, because even though it is not possible to satisfy everyone’s wants, all people are able to satisfy some of their wants. Similarly, every nation is able to provide some of the things its citizens want. So the basic problem facing any nation’s economy is how to make sure that the resources available to the people in the nation are used to satisfy as many as possible of the wants people care about most.
The U.S. economy, with its system of private ownership, has an extensive set of markets for final products and for the factors of production. The economy has been particularly successful in providing material goods and services to most of its citizens. That is even more striking when results in the U.S. economy are compared with those of other nations and economic systems. Nevertheless, most U.S. consumers say they would like to be able to buy and use more goods and services than they have today. And some U.S. citizens are calling for significant changes in how the economic system works, or at least in how the purchasing power and the goods and services in the system are divided up among different individuals and families.
Not surprisingly, low-income families would like to receive more income, and often favor higher taxes on upper-income households. But many upper-income families complain that government already taxes them too much, and some argue that government is taking over too many things in the economy that were, in the past, left up to individuals, families, and private firms or charities.
These debates take place because of the problem of scarcity. For individuals and governments, resources that satisfy a particular want cannot be used to satisfy other wants. Therefore, deciding to satisfy one want means paying the cost of not satisfying another. Such choices take place every time the government decides how to spend its tax revenues.
What Are Markets?
Goods and services are traded in markets. Usually a market is a physical place where buyers and sellers meet to make exchanges, once they have agreed on a price for the product. One kind of marketplace is a grocery store, where people go to buy food and household products. However, many markets are not confined to specific locations. In a broader sense, markets include all the places and sources where goods and services are exchanged. For example, the labor market does not exist in a specific physical building, as does a grocery market. Instead, the term labor market describes a multitude of individuals offering their labor for sale as well as all the businesses searching for employees.
Traders do not always have to meet in person to buy and sell. Markets can operate via technology, such as a telephone line or a computer site. For example, stocks and other financial securities have long been traded electronically or by telephone. It is becoming increasingly common in the United States for many other kinds of goods and services to be sold this way. For instance, many people today use the Internet—the worldwide computer-based network of information systems—to buy airline tickets, make hotel reservations, and rent a car for their vacation. Other people buy and sell items ranging from books, clothing, and airline tickets to baseball cards and other rare collectibles over the Internet. Although these Internet buyers and sellers may never meet face to face the way buyers and sellers do in more traditional markets, these markets share certain basic features.
How a Single Market Works
Buyers hope to buy at low prices and will purchase more units of a product at lower prices than they do at higher prices. Sellers are just the opposite. They hope to sell at high prices, and typically they will be willing to produce and sell more units of a product at higher prices than at lower prices.
The price for a product is determined in the market if prices are allowed to rise and fall, and are not legally required to be above some minimum price floor or below some maximum price ceiling. When a product, for example, a personal computer, reaches the market, consumers learn what producers want to charge for it and producers learn what consumers are willing to pay. The interaction of producers and consumers quickly establishes what the market price for the computer will actually be. Some people who were considering buying a computer decide that the price is higher than they are willing to pay. And some producers may determine that consumers are not willing to pay a price high enough for them profitably to produce and sell this computer.
But all of the buyers who are willing and able to pay the market price get the computer, and all of the sellers willing and able to produce it for this price find buyers. If more consumers want to buy a computer at a specific market price than there are suppliers are willing to sell at that price—or in other words, if the quantity demanded is greater than the quantity supplied—the price for the computer increases. When producers try to sell more of their computers at a price higher than consumers are willing to buy, the quantity supplied exceeds the quantity demanded and the price falls.
The price stops rising or falling at the price where the amount consumers are willing and able to buy is just equal to the amount sellers are willing and able to produce and sell. This is called the market clearing price. Market clearing prices for many goods and services change frequently, for reasons that will be discussed below. But some market prices are stable for long periods of time, such as the prices of candy bars and sodas sold in vending machines, and the prices of pizzas and hamburgers. Most buyers of these products have come to know the general price they will have to pay for these items. Sellers know what prices they can charge, given what consumers will pay and considering the competition they face from other sellers of identical, or very similar, products.
A System of Markets for All Goods and Services
How markets determine price is simple enough to understand for a single good or service in a single location. But consider what happens when there are markets for nearly all of the goods and services produced and consumed in an economy, across the entire country. In that context, this reasonably simple process of setting market prices allows an economic system as large and complex as the U.S. economy to operate with great efficiency and a high degree of freedom for consumers and producers.
Efficiency here means producing what consumers want to buy, at prices that are as low as they can be for producers to stay in business. And it turns out this efficiency is directly linked to the freedom that buyers and sellers have in a market economy. No central authority has to decide how many shirts or cars or sandwiches to produce each day, or where to produce them, or what price to charge for them. Instead, consumers spend their money for the products that give them the most satisfaction, and they try to find the best deal they can in terms of price, quality, convenience, assurances that defective products will be replaced or repaired, or other considerations.
What consumers are willing and able to buy tells producers what they should produce, if they hope to make a profit. Usually consumers have many options to choose from, because more than one producer offers the same or reasonably similar products (such as two or more kinds of cars, colas, and carpets). Producers then compete energetically for the dollars that consumers spend.
Competition among producers determines the best ways to produce a good or service. For example, in the early 1900s automobiles were made largely by hand, one at a time. But once Henry Ford discovered how to lower the cost of producing cars by using assembly lines, other car makers had to adopt the same production methods or be driven out of business (as many were).
Competition also determines what features and quality standards go into products. And competition holds down the costs of production because producers know that consumers compare their prices to the prices charged by other firms and for other products they might buy. In markets where a large number of producers compete, inefficient producers will be driven out of the market.
For example, at one time most towns and cities had independently owned cafes and drive-in restaurants that sold hamburgers, french fries, and soft drinks. Some of these businesses are still operating, but many closed down after larger fast-food chains began opening local franchises all around the nation, with well-known product standards and relatively low prices. The increased competition led to prices that were too low for many of the old cafes and drive-ins to make a profit. The private cafes that did survive were able to meet that level of efficiency, or they managed to make their products different enough from the national chains to keep their customers.
Prices for goods and services can only fall so far, however. Even the most efficient producers have to pay for the natural resources, labor, capital, and entrepreneurship they use to make and sell products. The market price cannot stay below the level of those costs for long without driving all of the producers out of this market. Therefore, if consumers want to buy some good or service not just today but also in the future, they have to pay a price at least high enough to cover the costs of producing it, including enough profit to make it worthwhile for sellers to stay in that market.
Once market prices for various goods and services are set, consumers are free to choose what to buy, and producers are free to choose what to produce and sell. They both follow their self-interest and do what makes them as well off as they can be. When all buyers and sellers do that in an economic system of competitive markets, the overall economy will also be very efficient and responsive to individual preferences.
This economic process is extremely decentralized. For example, it is likely that no one person or government agency knows how many corned beef sandwiches are sold in any large U.S. city on any given day. Individual sellers decide how many sandwiches they are likely to sell and arrange to have enough meat and bread available to meet the demand from their customers.
Consumers usually do not make up their mind about what to eat for lunch or dinner until they walk into the restaurant, grocery store, or sandwich shop. But they know they can go to several different places and choose many different things to eat and drink, while individual sellers know about how much they are likely to sell on an average business day.
Other businesses sell bread and meat and drinks to the restaurants and grocers, but they do not really know how many different sandwiches the different food stores are selling either. They only know how much bread and meat they need to have on hand to satisfy the orders they get from their customers.
Each buyer and seller knows his or her small part of the market very well and makes choices carefully to avoid wasting money and other resources. When everyone acts this carefully while facing competition from other consumers or producers, the overall system uses its scarce resources very efficiently. Efficiency implies two things here: taking into account the preferences and alternative choices that individual buyers and sellers face, and producing goods and services at the lowest possible cost.
How and Why Market Prices Change
Another advantage of any competitive market system is a high level of flexibility and speed in responding to changing economic conditions. In economies where government agencies and central planners set prices, it often takes much longer to adjust prices to new conditions. In the last decades of the 20th century, the U.S. market economy has made these adjustments very quickly, even compared with other market economies in Western Europe, Canada, and Japan.
Market prices change whenever something causes a change in demand (the amount people are willing to buy at different prices) or a change in supply (the amount producers are willing and able to make and sell at different prices). see Supply and Demand. Because these changes can occur rapidly, with little or no advance warning, it is important for both consumers and producers to understand what can cause prices to rise and fall. Those who anticipate price changes correctly can often gain financially from their foresight. Those who do not understand why prices have changed are likely to feel bewildered and frustrated, and find it more difficult to know how to respond to changing prices. Market economies are, in fact, sometimes called price systems. It is important to understand why prices rise and fall to understand how a market system works.
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