Basic principles of a market economy

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:43

We have long been accustomed to the fact that we live in a market economy, and do not even think about how it differs from other forms of economic systems. It has become a natural result of the evolution of forms of human management and has its own specifics. It is the principles of the market economy that are its fundamental difference, for example, from the planned type. Let's talk about the main principles without which the existence of the market is impossible.

The concept of a market economy

Humanity at the dawn of its history began to enter into economic relations. As soon as there are surpluses of the produced product, a system of distribution and redistribution begins to form. Subsistence economy naturally grew into an economy, which then transformed into a market economy. The formation of the market went on for more than one century. This is a natural process due to various factors. Therefore, the mainThe principles of a market economy are not rules invented and introduced by someone, they grew out of the specifics of people's interaction within the framework of an exchange.

Distinguishing features of a market economy

A market economy is always compared with a planned one, these are two polar forms of management. Therefore, the distinctive characteristics of the market can only be discovered by comparing these two forms. A market economy is the free formation of supply and demand, and the free formation of prices, while a planned economy is a directive regulation of the production of goods and the setting of prices “from above”. Also, the initiator of the creation of new production companies in a market economy is an entrepreneur, and in a planned one - the state. A planned economy "has" social obligations to the population (it provides everyone with jobs, minimum wages), while a market economy does not have such obligations, so, for example, unemployment may occur. Today, the principles of organizing a market economy have become classics; almost no one doubts them. However, the reality makes its own adjustments, and it can be seen that all the developed economies of the world are on the path of mixing the two main types of economic systems. So, in Norway, for example, there is state regulation of certain sectors of the economy (oil, energy) and the redistribution of benefits in order to ensure social justice.

Basic Principles

The market economy today is closely associated with democratic principles, although in realitythere is no such strong correlation. But the market presupposes the obligatory presence of economic freedoms, private property and equal opportunities for all. Modern market models suggest variability of models, researchers discover different interpretations of market mechanisms, their adaptation to the realities of the country, to its traditions. But the basic principles of a market economy are the principles of freedom, competition, responsibility and the postulates that follow from this.

Freedom of enterprise

The market implies the freedom of economic self-determination of a person. He may be in business or employed by an entrepreneur or the state. If he decides to open his own business, then he always has the freedom to choose the field of activity, partners, form of management. It is only limited by law. That is, everything that is not prohibited by law, a person can do, in accordance with their interests and capabilities. No one can force him to do business. The market provides opportunities, and a person has the right to use them or refuse them. The choice of a person within the market is based on his personal interest, benefit.

Pricing freedom

The basic principles of the functioning of a market economy involve the free setting of prices. The cost of a product is influenced by market mechanisms: competition, market saturation, as well as the characteristics of the product itself and the consumer's attitude towards it. The main pricing mechanisms are the balance betweensupply and demand. High supply puts pressure on the price, lowering it, and high demand, on the contrary, stimulates an increase in the cost of a product or service. But the price should not be regulated by the state. In modern conditions, the state still takes over the management of prices for some goods, for example, for socially significant ones: bread, milk, tariffs for utilities.

Self-Regulation

All principles of a market economy proceed from the fact that the only regulator of economic activity is the market. And it is characterized by such signs as unregulated demand, price and supply. All these factors come into interaction, and there is a market adjustment of the economic activity of entrepreneurs. The market contributes to the redistribution of resources, their flow from low-margin areas of production to more profitable profitable areas. When the market is filled with a large number of offers, the entrepreneur begins to search for new niches and opportunities. All this allows the consumer to get more goods and services at affordable prices, and also develops production and technologies.

Competition

Considering the principles of the market system of the economy, one should also remember competition. It is the main driving force behind production. Competition involves the economic rivalry of entrepreneurs in the same market. Businessmen strive to improve their product, under pressure from rivals they can reduce prices, in competition they usemarketing tools. Only competition allows markets to develop and grow. There are three main types of competition: perfect, oligopoly and monopoly. Only the first type implies equality of players, in other forms of competition, individual players have advantages that they use to influence the consumer and make a profit.

Equality

The market economy is based on the initial principle of equality of all economic entities, regardless of the form of ownership. This means that all subjects of the economy have equal rights, opportunities and responsibilities. Everyone must pay taxes, comply with the laws, and for non-compliance with them receive adequate and equal punishment. If someone in society is given preferences and benefits, then this violates the principle of equality. This principle assumes fair competition, when all market participants have equal opportunities in access to finance, means of production, etc. However, in modern forms of the market, the state assumes the right to make it easier for certain categories of entrepreneurs to do business. For example, people with disabilities, business start-ups, social entrepreneurs.

Self-financed

The modern market economy is based on the principles of responsibility, including financial responsibility. An entrepreneur, organizing a business, invests his personal funds in it: time, money, intellectual resources. The market assumes that a businessman risks his property while running a business.activities. This teaches a businessman to calculate his possibilities, to live within his means. The need to invest one's own funds forces the merchant to be enterprising, thrifty, and teaches him to maintain strict control and accounting for the expenditure of funds. The risk of losing your funds and being liable for bankruptcy before the law imposes a limiting effect on the entrepreneurial fantasy.

Contractual relationship

The basic economic principles of a market economy have long been built on the interaction of people who are connected by special relationships - contractual. Previously, a verbal agreement between people was enough. And today there are stable associations in many cultures associated with the merchant's word, with a handshake, as a guarantor of certain actions. Today, a contract is a special type of document that fixes the conditions for concluding a transaction, stipulates the consequences in case of non-fulfillment of the contract, the rights and obligations of the parties. The contractual form of interaction between economic entities increases their responsibility and independence.

Economic responsibility

All the principles of a market economy ultimately lead to the idea of entrepreneurs being held accountable for their economic actions. A businessman must understand that the damage he has caused to other people will have to be compensated. The guarantee of fulfillment of obligations and liability for non-fulfillment of agreements make the merchant take his business more seriously. Although the market mechanism is primarilystill proceeds not from legal, namely economic responsibility. It consists in the fact that an entrepreneur who has not fulfilled the contract loses his funds, and this risk forces him to be honest and careful.