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Market Economy |
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WIKI ANALYSIS
Market economy refers to a system where the prices of goods and services are set by supply and demand. The value of information, goods, and services is determined through free trade. In 2008, free trade is often regulated by governments, resulting in a mixed economy rather than a pure free market system. In this type of economic system the government is the facilitator only.
A market economy is the opposite of a command or centrally planned economy. In a command system, the government determines what goods are sold, how much of them, and what they will cost. This single actor is replaced by many in a market system, where the price of a good is determined by both the supply and demand for it.
Mixed Economies are More Common
Today, most markets are actually mixed economies, with governments placing varying amounts of regulation on the forces of supply and demand. There is significant debate among economists regarding the amount of government intervention considered optimal for efficient economic operations. This has been especially relevant during the 2008 Financial Crisis, as the U.S. government has stepped in aggressively to bail out investment banks and purchase souring Collateralized debt obligations. In a free market economy, the ‘invisible hand’ of supply-and-demand market forces defines what is produced, in what quantity, and at what price.
A market economy is a type of economic system in which the trading and exchange of goods, services and information takes place in a free market. A market economy may therefore also be known as a free market economy. The phrase is typically applied to countries or administrative regions that follow this approach.
Since free markets are governed by the law of supply and demand, the market itself will determine the price of goods and services, and ta*bulletll participants. Businesses can decide which goods to produce and in what quantity, and consumers and businesses can decide what they want to purchase and at what price.
The opposite of a market economy is a planned economy, where the government decides what to produce, in what quantity, and to be sold at what price.
Mixed economies blend market and planned economies, meaning that the government will have some role in regulating the market, but all other activity will be driven by the decisions of buyers and sellers.
Since the government will always have some level of regulatory control, no country operates as a free market in the strict sense of the word, but we generally say that market economies are those in which governments attempt to intervene as little as possible, while mixed economies include elements of both capitalism and socialism.
The main characteristics of a market economy are its flexibility and decentralized nature. This type of economic system is more apt to cope up with ever-changing market trends, making it faster and more reactive.
The role of the national and state governments in the market economy is debatable, although it has been found that government interventions are sometimes necessary. In these cases, the government mainly deals with the formation and implementation of rules and regulations and ensures that monopolistic behavior does not obstruct competition in the marketplace.
Regardless of the government’s role, decisions made in a free market economy are primarily made by the ‘invisible hand’ of market forces - and not mandates issued by the government.
Free Market vs. Capitalism
A market economy is not synonymous with capitalism; free markets can exist in communist systems and other systems that do not have capitalism's defining characteristics. In capitalism, labor and economy are important to the whole part of the free market system.
Positives
-people work harder -a great variety of consumers goods become avalable -freedome to buy or reject products -price baced on what the population can afford
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