Institutions evolve in market economies to help individuals and groups accomplish their goals. A different kind of institution, clearly defined and enforced property rights, is essential to a market economy. Income for most people is determined by the market value of the productive resources they sell. What workers earn depends, primarily, on the market value of what they produce and how productive they are. Entrepreneurs are people who take the risks of organizing productive resources to make goods and services.
Profit is an important incentive that leads entrepreneurs to accept the risks of business failure.
Governments often provide for national defense, address environmental concerns, define and protect property rights, and attempt to make markets more competitive. Most government policies also redistribute income. Costs of government policies sometimes exceed benefits. This may occur because of incentives facing voters, government officials, and government employees, because of actions by special interest groups that can impose costs on the general public, or because social goals other than economic efficiency are being pursued. Unexpected inflation imposes costs on many people and benefits some others because it arbitrarily redistributes purchasing power.