Market economy is Signs, types and mechanisms of market economy

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:55

The market is not only an option for buying cheap clothes, but also the main part of one of the most widespread economic systems. We will talk about its signs and mechanisms of functioning, as well as the problems provoked by the market in this article.

Definition of a market economy

A market economy is a system based on the personal belonging of each participant to it, as well as competition and free choice. It primarily focuses on personal consumer preferences and interests, putting the role of government in a limited framework.

The freedom of consumers in a market economy is the unlimited choice of goods and services in the market. It is also characterized by entrepreneurial freedom. The entrepreneur has the opportunity, on an independent basis and in accordance with his own interests, to distribute resources, as well as organize the production of products.

Market Formula

The fundamentals of a market economy are established in a formula that is characteristic only for this type, consisting ofthree questions that an individual producing goods and services decides for himself:

What to produce?
How to produce?
For whom to produce?

It is important that the signs of a market economy are precisely the answers, and not the questions themselves, because they are asked in the analysis of any economic system. Among other things, the manufacturer independently determines such an important market factor as the price.

Competition in a market economy

The basis of the economic system we are considering is the so-called "invisible hand of the market" (a definition coined by Adam Smith), or simply competition. Actually, the choice, constantly made in the conditions of the market on a free basis, is the basis of competition in a market economy.

Private Property

Also among the signs of a market economy is private property. This economic category is a guarantee of full compliance with already concluded agreements, and at the same time, non-interference of some third party. As a side note, we note that financial freedom (a concept directly related to private property) also determines the personal freedom of each member of society and society as a whole.

Components of a market economy

The modern market economy is an incredibly complex, multicomponent organism. It consists of an incalculable number of various financial, informational, commercial and industrial structures. All these organizations operate against the backdrop of a complex systemrules of law in the field of business, which can be combined under the general concept of "market".

Definition of the term "market"

"Market" (as the market economy is otherwise called) is a term that has many definitions. Its simplest definition is that it is a place where people seek and find each other as buyers and sellers.

In neoclassical economic doctrine, which is very widespread in modern society, the definition given to this mechanism by the famous economists Cournot and Marshall is most often heard.

A market is not any particular marketplace in which items are sold and bought, but in general any area where buyers and sellers deal with each other so freely that the prices of the same goods tend to easy and quick to align.

As a rule, definitions of the market differ in its criteria, which are stated as the main ones. In the above definition, this is free price fixing and free exchange.

The English scientist in the economic sphere Jevons declares the closeness of mutual ties among buyers and sellers as the main criterion. Moreover, Jevons believes that a market can be called absolutely any group of people who enter into a fairly close business relationship for some reason, as well as enter into certain commodity transactions.

The main drawback of these definitions is the fact that the content of the market economy and the market is directly linkedonly with the sphere of exchange.

Market today

The market economy today is based on the concept of "market", which necessarily has a dual meaning:

The first is its own meaning, which connects the market with sales in the sphere of exchange and circulation.
In the second meaning, the market is a system of economic relations of people who are able to cover the processes of both production and distribution, as well as exchange and consumption.

Thus, the market in the mechanisms of a market economy occupies a special place and is distinguished by its complex functioning due to the composition of many components. It is directly based on the use of commodity-money relations, various forms of ownership, and the financial and credit state system.

Some other components of the market can be identified:

Exchange between joint ventures and foreign firms.
Relationships based on the lease of both directly enterprises and any other economic structures, in which the mutual connection of two entities takes place on a market basis.
Credit relations that arise in the framework of obtaining loans at a fixed percentage.
Recruitment and further exploitation (in the neutral meaning of use) of the labor force through the labor exchange.
Independent functioning of the market management structure (otherwise it can be called infrastructure), which includes currency, stock, commodity exchanges, and other elements besides them.

The mechanism of the functioning of the market system

Basic principles of market life in the country's economy:

Freedom to choose the forms of activity and methods of its implementation.
The inevitable penetration of market-type relations into all spheres of production activity (otherwise - the universality of the market).
Absolute equality of market entities regardless of the form of ownership they own.
Self-regulation of the market, supplementing and fully or partially replacing state management of the economy.
Basing all economic relations on contractual principles.
Free pricing for entities providing a market offer.
Self-financing and self-sufficiency of economic entities.
Economic independence and transfer of management "from the center".
Provoking the emergence of liability through economic means - by using the principle of independent compensation for damage by individuals or organizations guilty of it.
Partial state regulation (the ideal formula is the state as a "night watchman").
Competition as the main factor in improving the economic efficiency of the market.
Various ways of social protection implemented everywhere.

Market economy models

The evolution of the market type of management provokes the formation of diversity among the types of market economy. It should be understood thatdespite the differences, they are formed, firstly, under the conditions of the same economic system and, moreover, within the same technical basis. There are many ways to classify market economy models that differ from one another in methods and forms of state regulation, in areas in which the market and the state operate or interact, and so on.

Currently, it is customary to distinguish the following types of market economy:

Western European. It is characterized by the active intervention of the government of the country and a large share of the public sector (it is followed by Italy, France, Portugal, Spain).
Saxon. Its main feature is entrepreneurial freedom unlimited by anyone and nothing (followed by Canada, USA, Great Britain).
Scandinavian. In this case, they distinguish equal participation in the economy of private and state capital, a very pronounced social and economic orientation (Norway, Denmark, Sweden adhere to).
Socially oriented. In it, even more than in the previous type, attention is focused on the social orientation of the state economy (Austria, Germany, the Netherlands adhere to).
Paternalistic. In such an economy, there is a clearly increased influence of the state, following some traditional elements in modern improved production (only one country adheres - Japan).

Market troubles today

At the heart of any economic system is actioneconomic regulators. In the development of a market economy, it is spontaneous, which invariably affects the instability of the financial sector. Disproportions within the system are not eliminated immediately. Moreover, the full restoration of economic balance often goes through stages of crises and other deep shocks.

With complete lack of control within the market environment, monopolies will definitely arise. As we understand it, this format does not correspond to the market at all, as it directly limits competition. It's funny, but it turns out that the direct consequence of an inefficiently functioning market system is its absolute eradication.

The spontaneous market mechanism does not organize the economy around meeting the many needs of society. This is, first of all, the registration of decent pensions, scholarships and social benefits, the improvement of he althcare and education systems, the spheres of science, sports, culture, and art also suffer. Finally, the market is not able to ensure permanent full employment of the population, and therefore does not provide a guarantee of income. Each member of society must independently improve his economic situation. This leads to social differentiation and the emergence of two extremes: the poor and the rich. The level of social tension is growing.

Among the main problems of the market economy today, the central one is singled out - comprehensive ensuring the growth of the country's economy. However, as everyone knows, without clearly defined rules and their consistent implementation, it is impossible to solve a single problem, and even more so of an economic plan. Yes, everythingshould understand that it is impossible to provide support to socially unprotected groups of the population in conditions when tax revenues do not appear in the state budget in the proper amount. Similarly, it is impossible to build a market in a civilized way when the country is in a deep corruption hole. That is, if an official is dependent on the material component and capital, economic growth and economic progress will be absolutely impossible.

Let's say separately that the modern market system, in principle, is not able to exist completely autonomously. Nevertheless, the participation of the state in its management may become another problem for the market. There is a border that cannot be crossed in this matter, so as not to provoke irreversible negative changes in market processes. That is, even government intervention, which, in theory, should be aimed at maintaining and stabilizing the economy, can lead to a sharp and deep decrease in production efficiency.

One of the problem areas for a market economy is agriculture. Moreover, in this case, paradoxically, we are talking about economically developed states. Its essence lies in the fact that in the countries of the advanced echelon of modernization, the amount of manufactured products is many times greater than the volumes that fully satisfy the needs of the population. The reason for this is the high level and pace of labor productivity.

Out of the situation

Be that as it may, you should not panic, asa market economy is a market imperfection that can be effectively mitigated by sound economic policies. In this case, we should talk about the need for partial state intervention associated with the redistribution of material resources in favor of areas that, for objective reasons, cannot exist in market conditions on the basis of self-sufficiency. We also include politics in the social sphere.