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27
UNDERSTANDING
ECONOMICS
T^hat is the basic idea of the American eco-
’’ nomic system?
The basic idea is called the market principle.
We can best illustrate this principle by thinking
about a single business transaction. Mrs. Jones goes
to a supermarket to-buy groceries. At the bakery
counter she sees several kinds of loaves of bread—
at different prices. She chooses one and puts it in
her cart. After making her other purchases she
goes to the checkout counter where a cashier totals
her purchases and she pays for them.
The store manager didn’t know Mrs. Jones would
buy that loaf of bread. Neither did the bakery which
sold the bread to the supermarket chain. Nor did
the flour-milling firm which sold the flour to the
bakery. The same is true of others whose acts led
up to Mrs. Jones’ final purchase. None of them knew
who would buy the final product in that chain of
transactions.
What did they know?
jp^IRST OF ALL, EACH BUSINESSMAN involved knew
^ there was a “market” for his goods. He knew
roughly what quantity he could sell and at what
price. He knew there was, in economic terms, a
demand for what he had to sell. While he did not
necessarily know who would buy his output, he
knew there were buyers—and he had a pretty good
estimate of the price at which they would be will
ing to buy.
But the whole chain of transactions was vol
untary. Together they brought about an organiza-
THE MARKET PRINCIPLE
tion of actions which wound up with a new loaf of
bread in Mrs. Jones’ kitchen. We call this organiz
ing principle the “market system.”
One of the main features of this system is that
business transactions are voluntary. Buyers, like
Mrs. Jones, purchase what they want at prices they
are willing to pay. Sellers, like the supermarket, sell
the kinds of goods they think buyers will want, at
prices which reward them for their services as sup
pliers. In other words, the goods which suppliers
bring to market are intended to match buyeys’
wants: supply is created to meet demand.
—One of a series, based on the discussion
course, understanding economics, published
by Chamber of Commerce of the United States.
Editor's Note: This is the first of five articles
which will help us to understand how a
free-enterprise system works, and how
it differs from other systems. In the next
issue, we will learn what profit does for us.
SPRING, 1968