Definition
- Incentives to innovate
- Firms in a market economy keep the profit from a better or cheaper product, rewarding invention and cost-cutting.
Example
Can you think of an example of incentives to innovate?
A supermarket that finds a cheaper way to move its stock can undercut rivals. A state firm with no rivals has no such spur.
Test yourself
Can you name two advantages of a market economy and two of a command economy?