The United States' Market Economy Impact on Its Regions

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  • 0:01 What is a Market Economy?
  • 0:57 Economy of the US
  • 3:13 Regional Impacts
  • 4:58 Lesson Summary
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Lesson Transcript
Instructor: David Wood

David has taught Honors Physics, AP Physics, IB Physics and general science courses. He has a Masters in Education, and a Bachelors in Physics.

After watching this video, you will be able to explain what a market economy is, how the US economy works, and describe some of the regional economies of the US. A short quiz will follow.

What Is a Market Economy?

A market economy is an economy where investment, production, pricing, and selling of goods are based on supply and demand. The more consumers demand goods, the more goods are produced. The less goods are available, the higher the prices tend to be. Everything is controlled by individuals making decisions.

A market economy is characterized by relatively minor levels of government intervention in the economy. The opposite of a market economy could therefore be described as an economy with major government intervention, where prices and production are controlled by them. The true opposite of a market economy is a planned economy, which is an economy where decisions are made in advance according to a plan, instead of in response to the decisions of individuals. Generally, it's a government that does the planning, but it can also be influential businesses.

The Economy of the US

The United States is strictly considered to be a mixed economy, which is an economy that has a mixture of market forces (supply and demand) and government regulation. But it's worth noting that no pure market economy exists in the western world today. The US is one of the least-regulated market economies in the world.

The US economy works primarily through consumption; demand drives the economy. If people stop buying things, the economy fails, investors panic, and it can lead to a recession. Economic success is usually measured by GDP growth. GDP stands for gross domestic product and is the monetary value of all the finished goods and services produced within a country's borders in a year. When the gross domestic product is increasing, the economy is thriving. When GDP is decreasing, the economy is considered to be in a recession. If this goes on for long enough, it is called a depression.

Financial markets are also important in the US. These are markets where people invest in companies by buying stocks and shares. If you buy shares in a company, you own part of the company and share in some of their profit. And if the company does well, you can sell those shares later for more than you originally paid for them. The main financial market of the US is centered on Wall Street in New York, though most trading happens online these days.

Inflation and deflation are also factors in the US economy. Inflation is an increase in prices, and deflation is a decrease in prices. Inflation happens when demand is greater than supply, and deflation happens when supply is greater than demand.

Policies regarding currency are decided by the central bank of the US, which is called the Federal Reserve. They control the federal funds rate, the money supply, and the use of credit. Their main job is to limit and control inflation, but they're also responsible for helping stimulate the economy and helping the banking system work well.

The US economy is all about balance: a balance between free markets and planned markets, a balance between inflation and deflation, and balance between supply and demand. When things are in balance, the economy thrives.

Regional Impacts

The US economy is centered on cities. Most of the GDP produced by the country is produced in or around cities, and most human consumption happens there, too. Indeed, around 260 million of the 319 million people who live in the US, live in urban areas. But more than that, the economy is centered around a dozen or so highly productive city regions: Northern California, Southern California, Seattle-Tacoma, Denver-Boulder, Dallas-Austin, Houston-New-Orleans, Central Florida, Boston-to-Washington, Chicago-Pittsburgh, and Charlotte-Atlanta. These areas comprise 70% of the US population and are highly productive. The Northeast region from Boston down to Washington alone has an economy larger than Germany in terms of GDP.

The so-called 'energy belt' is a major economic region of the US and includes Texas, Oklahoma, the Dakotas, Montana, Louisiana, and Wyoming. Both through the production of oil and also newer technologies like solar power and wind, these areas produce huge amounts of energy.

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