Final answer:
A market economy leads to income inequality based on skills, competition, and entrepreneurship.
Step-by-step explanation:
In a market economy, a certain degree of inequality of income is expected for several reasons:
- Skills and Education: Individuals with higher skills and education tend to earn higher incomes because they possess specialized knowledge and expertise that is in demand. This creates income inequality based on the value of their skills in the labor market.
- Market competition: Industries and occupations that offer limited job opportunities and have high demand create income inequality. For example, high-skilled professionals such as doctors and engineers often earn higher incomes compared to low-skilled workers in industries with surplus labor supply.
- Entrepreneurship: Entrepreneurs take risks by starting their own businesses. This risk-taking can lead to substantial income inequality, as successful entrepreneurs may earn significantly higher incomes compared to salaried workers.
In conclusion, the operation of a market system does have an effect on the distribution of income in the economy, leading to varying levels of inequality based on skills, competition, and entrepreneurship.