Economics
Market Economy
A market economy is an economic system in which the production and distribution of goods and services are determined by the interactions of supply and demand in the marketplace, with minimal government intervention. Prices are set by the forces of supply and demand, and resources are allocated based on consumer preferences and business decisions.
Written by Perlego with AI-assistance
Related key terms
1 of 5
8 Key excerpts on "Market Economy"
No longer available |Learn more- (Author)
- 2014(Publication Date)
- Orange Apple(Publisher)
____________________ WORLD TECHNOLOGIES ____________________ Chapter- 2 Market Economy A Market Economy is an economy based on the power of division of labor in which the prices of goods and services are determined in a free price system set by supply and demand. This is often contrasted with a planned economy, in which a central government can distribute services using a fixed price system. Market economies are also contrasted with mixed economy where the price system is not entirely free but under some government control or heavily regulated, which is sometimes combined with state-led economic planning that is not extensive enough to constitute a planned economy. In the real world, market economies do not exist in pure form, as societies and governments regulate them to varying degrees rather than allow self-regulation by market forces. The term free-Market Economy is sometimes used synonymously with Market Economy, but, as Ludwig Erhard once pointed out, this does not preclude an economy from having socialist attributes opposed to a laissez-faire system. Different perspectives exist as to how strong a role the government should have in both guiding the Market Economy and addressing the inequalities the market produces. For example, there is no universal agreement on issues such as central banking, and welfare. The term Market Economy is not identical to capitalism where a corporation hires workers as a labour commodity to produce material wealth and boost shareholder profits. Market mechanisms have been utilized in a handful of socialist states, such as China, Yugoslavia and even Cuba to a very limited extent. It is also possible to envision an economic system based on independent producers, cooperative, democratic worker ownership and market allocation of final goods and services; the labour-managed Market Economy is one of several proposed forms of market socialism.
eBook - PDF- David Stager(Author)
- 2013(Publication Date)
- Butterworth-Heinemann(Publisher)
As the prices of various products and productive resources change, both buyers and suppliers may change their decisions about what to buy and to produce, such that changes in the prices and quantities in several majrkets may follow from a change in any given market. Various terms have been associated with this form of economic orga-nization. The term price mechanism stresses that prices are central to the decision-making in a Market Economy; free enterprise economy appropriately describes only one aspect of the pure form, whereby any individual is free to produce any commodity in any quantity and by any method; and capitalist economy emphasizes that individuals may own physical capital, thereby realizing larger incomes than if they offered only their labour services. These latter two terms, however, have political connotations that can detract from an understanding of the essential elements of the Market Economy. Mixed Economies Economics: Ttie Analysis of Ctioice 15 All economies are more appropriately described as mixed economies. This term is not very informative; rather, its value lies in emphasizing that elements of each of the pure forms can be found in any existing economy. In the Canadian economy, for example, the market system is dominant, but there are also features of the planned and traditional economies. Formal education, for example, is provided mainly through a planning mechanism, with authorities at different levels of govern-ment deciding who shall go to school (under the compulsory attendance legislation), where schools shall be built, and what shall be taught. Elements of the traditional economy may be found in Canada in some Inuit and Indian communities. There are at least two criteria for choosing which of these systems should be followed, or how dominant each system should be in a mixed economy. One is economic performance — achieving maximum output per person —and the other is the freedom of choice available to producers and consumers.
eBook - PDF- Bradley A. Hansen(Author)
- 2006(Publication Date)
- Greenwood(Publisher)
Sometimes a government tells people what to produce and what trades they can and cannot make. In the Soviet Union there was a great deal of specialization and division of labor; the state told people what to specialize in and who they could sell it to. In the United States we, as individuals, make most of the decisions about what we specialize in and with whom we trade. Almost 80 percent of all goods and services are produced by private businesses, and over 80 percent of the goods produced are purchased by households and businesses for consumption or investment. Several different names have been used to de- scribe economies like the United States: a capitalist economy, a market econ- omy, and a free enterprise system. All of these names mean essentially the same thing: Households and private businesses own the resources and make the decisions about how to allocate them. The decisions about what to produce, how to produce it, and who receives it are made by people vo- luntarily trading with each other in markets. MARKETS ARE A FORM OF COOPERATION Markets are where people come together to buy and sell. There are many different types of markets. In the past, markets were often located in a specific place. In some old towns it is still possible to locate the original market square. Now many of the markets that people use do not have a physical location. You may hear reports on the news about what is hap- pening to stocks on Nasdaq, but no one can tell you where Nasdaq is, because it does not exist in a specific location. Nasdaq is the National As- sociation of Securities Dealers Automated Quotation system, and it is com- posed of securities dealers all over the country connected by an electronic network. Some markets are quite small, such as a farmers’ market in a small town. Other markets are fairly large. The market for homes in cities usually ex- tends well beyond the city limits.
eBook - PDFGlobalization and Sustainable Development
A Changing Perspective for Business
- Martin Oyevaar, Diego Vazquez-Brust, Harrie W.M. Van Bommel(Authors)
- 2017(Publication Date)
- Red Globe Press(Publisher)
In hierarchies all decisions are made by a central planning authority which owns Market Economies and Governments 15 resources and decides what is to be produced, how and for whom. Today, only North Korea is a pure example. In the free market, economic resources are privately owned while customers and producers are free to decide by themselves what to produce, how and for whom. Markets are decentralized because allocation of resources is the outcome of aggregating many individual decisions, each of them based on self-interest. This is called the invisible hand. Although the invisible hand has proven distinctly more effi- cient than command economies, there are no pure free market economies. Real-world market economies combine free market and hierarchy. Governments still play an impor- tant role for two reasons: a) the inability of markets to deliver some types of goods (for instance police protection) and b) to correct imperfections of the market system (for instance marginalization of the needs of those with low incomes). 9 A particular type of market imperfection is ‘boom’ and ‘bust’, the cyclical economic and financial crisis affecting capitalist economies. 10 The extent to which governments should intervene is controversial. Three main views can be identified. Neoclassical economics (also called neoliberal) argues that many problems labelled as ‘market imperfections’, such as monopolies, are due to a lack of the right conditions for well-functioning markets. Governments must ‘get the basics right’ for the creation of such conditions, providing macroeconomic stability and a reliable legal framework to promote competition while protecting property rights. Revisionist views contend that a wide range of market failures are likely to happen even in well-functioning markets.
eBook - PDFPostindustrial Possibilities
A Critique of Economic Discourse
- Fred L. Block(Author)
- 1990(Publication Date)
- University of California Press(Publisher)
Chapter Three The Market The central category of economic discourse is the market; it is the market that is supposed to produce a harmonious result out of the clash of competing interests. It is the market's capacity to perform this feat that sustains the idea of a self-regulating market society in which external interventions in the market are to be kept to a minimum. Yet economists almost always discuss the market at a high level of abstraction; there is remarkably little discussion in the literature of the workings of actual markets. 1 When one examines the actual markets in which commodities are bought and sold, it quickly becomes apparent that markets of the kind exalted in theory are rare. Economists tend to respond to this observation by acknowledg-ing its truth, but insisting that we are worse off as a result. They insist that whatever gains in economic efficiency have occurred over the past two centuries are the result of an institutional framework that has increased market freedom, and that had we moved even closer to full market freedom, the gains would have been even greater. It is argued here instead that the successes of capitalist development are a product of limitations on market freedom. The i. Bernard Barber discusses the failure of most economists to analyze the market concept in a systematic fashion in The Absolutization of the Market: Some Notes on How We Got from There to Here, in G. Dworkin, G. Bermant, and P. Brown, eds., Markets and Morals (Washington, D.C.: Hemisphere, 1977), 15-31. For an important exception to the neglect of actual markets, see Harrison White, Where Do Markets Come From? American Journal of Sociology 87, no. 3 (1981): 517-47-46 vitality of capitalism has always rested on a particular mix of markets and limitations on markets and the abandonment of the limitations reduces the vigor of a capitalist economy.
eBook - PDF- Gregory C Chow(Author)
- 1987(Publication Date)
- WSPC(Publisher)
Most people agree, however, that some form of income redistribution by the government is desirable. F. The above discussion deals mainly with the government's role in the allocation and distribution of resources that, in a Market Economy, are the result of decisions of many individual economic units—consumers and enterprises. This is the branch of economics known as microeconomics, to be distinguished from macroeconomics, which deals with economic aggregates or averages, such as the national income, total employ-ment, the price level as measured by some price index, and the changes in these aggregates. There are many explanations of business fluctuations. For example, rapid rise in production in certain years may result from the introduction of new products, from the increase in the supply of money (as through the discovery of gold), from a very good harvest, and from other causes. Slowdown in production may be caused by a lack of investment opportunities, by slow growth in the purchase of durable goods 38 HOW A Market Economy WORKS after large purchases in the recent past, by a drop in the money supply because some people withdraw their money from the banks after hearing of a few bank failures, and by other factors. We cannot go into these explanations here. The government has a role in promoting price stability, full employment, and reasonable growth in the economy by adjusting government expenditures and taxation (fiscal policies) and by adjusting the supply of money and the availability of credit {monetary policies). G. The government has a role in influencing the flow of foreign trade by setting tariffs, import quotas, subsidies to export industries, and the exchange rate of its currency. Some economists are in favor of free trade—that is, no tariffs, import quotas, or subsidies—because such measures only improve the welfare of certain members of the community at the expense of others.
eBook - PDFBuilding the Good Society
The Power and Limits of Markets, Democracy and Freedom in an Increasingly Polarized World
- Lloyd J. Dumas(Author)
- 2019(Publication Date)
- Emerald Publishing Limited(Publisher)
It is license, rather than freedom, and leads to chaos, not ef fi ciency. There must be boundaries, set at least in part by government in the form of laws and regulations. But where they should be set is, in the end, not absolutely clear. What is clear is the criterion by which they should be evaluated. We need to fi nd that sweet spot of minimal government involvement necessary to keep the market game honest and competitive and to keep private decision-making sensitive to the calculation of full societal costs and bene fi ts. EFFECTIVE DEMAND VERSUS NEED One of the greatest advantages of the market system is its ability to impersonally coordinate the activities of those who produce goods and services (the supply side of the market) with what their customers want. If ful fi lling everyone ’ s economic wants and needs depends on a small group of people personally making decisions as to what will be produced and how – as it does in a centrally planned economy – that group must gather into their hands and somehow digest enormous amounts of information to do its job well. That is extraordinarily hard to do, if it is even possible. But the impersonal signals that get transmitted chie fl y through the price system of a Market Economy deliver that information directly to the very large number of widely dispersed decision-makers who manage the thousands of fi rms The Market System: Achieving Equity and Material Abundance 43 that make up a diversi fi ed, decentralized competitive Market Economy. To be more precise, what is happening to the prices and sales of the particular products any given fi rm is making conveys the information that the man-agers of that fi rm most need to know to adjust the quantity, characteristics, and quality of their products to match shifting customer preferences. And of course the lure of greater sales and higher pro fi ts provides a strong moti-vation for the fi rms to make those adjustments.
eBook - PDFMarket and Society
Two Theoretical Frameworks
- Milan Zafirovski(Author)
- 2003(Publication Date)
- Praeger(Publisher)
Like Smith, Mill holds that the "extent of the possible market" allows for a "considerable" division of labor, especially within large enterprises or man- ufactories. In turn, the operation of the market is assumed to determine prices as well as distributive shares, including wages and profits. Second, the essence of the market is what Mill calls "perfectly free competition" among individual economic agents. In particular, the pres- ence of a single price in the same market is seen as the "natural effect of unimpeded competition," though with many recognized exceptions. In turn, market competition represents an economic process or behavioral category defined by the "power of permanently underselling" as well as an economic pattern or structural phenomenon, namely, the "state of free competition." Third, the (freely competitive) market constitutes the most The Market in Catallactics 71 efficient means for enhancing individual well-being and social welfare, thus the main condition of a prosperous, free, and progressive, or simply "happy," society. In Mill's words, the "existence and progress" of society is, first and foremost, founded on the market guided by "individual com- petition," in conjunction with private property. Alternatively, the absence of such a market foundation would be some sort of recipe for economic and social disaster by virtue of resulting in "mental dulness," [sic] "idle- ness," and the like. Fourth, the extraneous regulation of economic processes, above all government interference with the free operation of the market, is counterproductive and should be kept at a minimum. This is apparently a normative judgment rather than a statement of fact, as Mill also recognizes the presence of various disturbing causes, in the market, including government and customary restrictions as well as monopolies or monopolistic tendencies.
Index pages curate the most relevant extracts from our library of academic textbooks. They’ve been created using an in-house natural language model (NLM), each adding context and meaning to key research topics.
