Market Economic System - Features and Principles

The market economic system is a model of the economy that relies on market self-regulation and operates on the basis of commodity-money relations and private property.

In this case, only the buyers themselves and the direct suppliers of goods and services form a distribution structure.

The market economic system functions only if certain principles are observed in the relationships of economic entities.

1. Economic freedom

This principle means that each economic entity is guided by its own interests and is responsible for its actions. The prerequisite for the implementation of this principle is private property, which extends to property, income and production resources.

For an entrepreneur, economic freedom means the opportunity to start your business in any field and achieve the goal of maximizing your income from the project by all legal means.

For the consumer, economic freedom provides for a wide range of goods and services, achieving optimal use of their income in order to obtain the highest value for themselves.

2. Competition

This principle means competition for the best realization of its economic interest. Competition can not exist without economic freedom, and without it, a market-based economic system is impossible.

There are perfect and imperfect competition . The first implies several conditions:

- a large number of buyers and manufacturers, so that no one can dictate and determine the price in the market;

- every buyer and seller has the opportunity to freely enter the market (participate in production, purchase or sale) and freely leave it (to cease their participation), since there are no legal and organizational obstacles to this;

- the goods of a certain market are approximately equal in quality or homogeneous, that is, they do not offer buyers advantages over each other (all buyers are at the same time identical to sellers);

- Buyers and sellers are equally fully informed about market prices and know the situation on the market;

- Buyers and sellers do not have the opportunity to collude in order to obtain benefits.

Imperfect competition begins when one or more of the above conditions is violated.

The market system most often exists in conditions of imperfect competition, since it is practically impossible to meet all the requirements of the perfect one.

3. Self-regulation

This principle means that, despite a large number of producers and consumers, significant differences in interests, their activities are automatically negotiated, thanks to competition and free formation of prices. The market economic system implies that prices are formed by mutual consent of consumers and producers.

This principle of market self-regulation was first formulated by the prominent economist Adam Smith, who lived in England in the 18th century. In his book The Wealth of Nations he expressed the idea that it is economic selfishness, that is, the desire to realize one's interests, that forces the manufacturer to create exactly what the buyers want, while observing the minimum price of the goods. The "invisible hand of the market" directs the manufacturer to such goals, which do not at all pertain to his original intentions.

This is what we are now observing: the market economy is the best contributor to the development of charity, the social sphere, the development of technology and the improvement of the overall standard of living.

Thus, the market economic system assumes that each person, under the influence of his own benefit, will inevitably prefer to carry out actions that will best serve the interests of society.