Market economy

The market economy represents such type of economic relations at which the basic economic decisions are accepted by the decentralized methods. Such an economy functions through the market as a form of mutual relations of individual economic entities, independently and without the help of other decision-makers.

In theory, there is a concept of a perfect market, which is the market on which one value per product at a certain time is set. For this, several conditions must be met: regular and high demand, a large number of participants in business activity, mobility of the main factors of production, free access of participants to information and free competition among sellers and buyers.

The market economy, as a rule, does not have all the features mentioned at the same time. Therefore, in reality there is not a perfect market (a pure market economy), but a competitive market. For its normal operation requires the implementation of different forms of ownership (cooperative, joint stock, public, private, etc.). In addition, the development of market relations requires the creation of a developed infrastructure, which includes such components as the market of factors of production, the market of products and services, the money market.

The market economy is characterized by the interaction and mutual influence of these three markets. When they reach equilibrium, there is a general macroeconomic balance. This is possible if the equilibrium level of output and prices is reached in the market of goods and services as a result of the interaction of supply and demand, the corresponding level of loan interest in the capital market, and the stable equilibrium of costs and factors of production in the market for production factors.

From the implementation of all these conditions and the market economy depends on the essence and functions. The market performs several important functions in the economy. This regulating (regulates production, influencing the level of demand and supply), stimulating (stimulating the introduction of scientific achievements, reducing costs, improving the quality of work), information (provides objective information about the range, quantity, quality of goods, services), intermediary (the consumer can choose Suppliers of goods), sanitizing (clears from economically unviable economic units) and social (differentiates the incomes of its participants).

The market unites all participants in economic relations - both producers and consumers - into a single system. The subjects of the market in their behavior are motivated, as a rule, only by private enthusiasm. That is, in fact, they are not interested in the fact that the economy has worked well as a whole. Therefore, the coordination of separately taken decisions in the market is carried out by a market mechanism that links the decisions of individual economic entities together through competition and the price system.

Market economy is one of the most significant characteristics of competition. It is competition that can restrain individual private interests, directing them to create products that are truly socially necessary. It promotes a more complete and efficient use of limited resources, which are channeled only to cost-effective production. Competition is the basis of control and regulation in the operation of the market mechanism.

In order for the market to function stably and without failures, it is necessary that the main chain of economic processes (production, further distribution, exchange of products, final consumption) develop patterns of behavior of people in the economy, which are called economic systems. Today, four main types of economic systems are distinguished : the market of free competition, the traditional economic system, the modern market economy and the economy of the administrative command system.