US Market Economy

October 13, 2010Economic Systemsby EconomyWatch



The United States of America or USA has long been the global superpower in terms of economic prosperity and technological advancement for some decades now. Accounting for only 5% of the world’s population, it produces more than one fourth of the global economic output.

Driven by the ideals of “free market” and the rationale of “individual freedom” and “free enterprise”, the US market economy has been deemed one of the most efficient economies with the lowest inflation rates and rates of unemployment in the world. The essential feature of a market economy is the total freedom of individuals and businesses to choose from between an array of goods and services according to their tastes and preferences. The decisions of what to produce, whom to produce for in a world of limited resources, are addressed by the forces of the market, namely the supply and demand of a particular commodity in question.

In a way, the US market economy can be said to be based on the principle of individual freedom to make responsible and well informed decisions; freedom as a producer to increase output of a particular commodity taking the risks and rewards associated with it, freedom as a consumer to buy any product from a range of choices and the freedom of a worker to work under any employer from a set of suitable employers.

The market economy in USA believes in prices to play the “invisible hand” allocating and distributing the output produced in the country. Under the optimal condition of market efficiency, the price of a commodity is said to be unique at which the seller wants to sell the product simultaneously equals the price which the buyer wants to pay for the product. Markets allow transactions to be decentralized to the level where decisions made by the producers and consumers automatically adjust the system into equilibrium.

Some of the features of the US economy are:

  • GDP at $12.98 trillion based on 2006 estimates
  • Per capita GDP of $43,500 (2006 estimates)
  • GDP growth rate of 3.4% (2006 estimates)
  • Unemployment rate of 4.8% (2006 estimates)
  • Inflation rate at 2.5% (2006 estimates)
  • Industrial production growth rate at 4.2% (2006 estimates)

The share of agriculture in the Gross Domestic Product (GDP) of the country has been gradually falling with as low as about 1% at present. With technological superiority in the field of computers, aerospace and military equipment, the country now boasts of one of the highest per capita incomes in the world.

This technological onrush is gradually creating a divide between the skilled, professional workers and the unskilled and uneducated ones who are gradually being thrown out of the system due to their lack of expertise in handling sophisticated equipments. Recent estimates have shown that the gains in per capita income mainly accrue to the top 20% of the households in terms of income.

The US economy also ably tacked the situation of the Great Depression in the 1930’s and the high inflation rates in 1970 mainly due to soaring global oil prices with due efficiency with its sound monetary and fiscal policies. Although the economy is currently facing a problem with the continuing war in Iraq against “Terrorism,” with most of the country’s resources being diverted towards it, it has not been able to stem the increase in the per capita GDP, and it still remains the largest economy in the world.

The institution of “free market” or “market economy” is enmeshed in the American system which prides in its virtues of complete individual freedom. But it should be noted that this system cannot be totally viable in developing economies like India and China. With increasing leanings towards the market economy and values associated with Capitalism, China is recording double digit growth rates in GDP but at the same increasing the gap between the “have-nots” and the “have-lots.”


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