Definition of market economy

The concept that will occupy us below has a job excluding in the field of economy.

Economic system that is based on the game of supply and demand that determines the price of goods and services

The decisions of this economic system result through the market itself, being the interaction of supply and demand that will establish the quantity and price balanced of the goods and services that are traded, and also the market deals with distributing income through the possession of the factors of production.

Limited state intervention

Meanwhile, the state has a role to play in providing a legal framework that allows that free competition to take place effectively, that is, protect property rights, mediate conflicts and act only in cases where competition is limited, through subsidies.

The market economy Consists of the organization, production and consumption of goods and services within the framework of the supply-demand game, where buyers and sellers agree the prices of the products freely and having a minimal

participation of the state, in a context where monopolies that affect this situation prevail.

Defining characteristics

Among its most salient features we can mention: its decentralization, because conflicts are resolved between the parties; it works by means of signals such as prices; income distribution is distributed to workers based on their contribution to the production process and the owners of the resources productive receive cost effectiveness in relation to the contributions of productive assets; competition pays serious attention to consumer interests.

And in a situation of imperfect competition, a fact that will demand a concrete and effective participation of the state to control and correct market failures and also to guarantee participants access to goods and services.

The imperfect competition is a typical market failure situation characterized by a single market player, or a few, having the possibility of manipulating the conditions of the product or service, and are also capable of influencing the formation of prices.

The worst consequence of this economic scenario is consumer dissatisfaction.

Link to the free market

It should be noted that this concept is equated with that of free market, since it is precisely characterized because the prices of the products are agreed by sellers and consumers from the laws of supply-demand.

Meanwhile, for the existence of this system, yes or yes, it is necessary that there is free competition, voluntariness of the parties, that is, between those involved in a transaction there may not be fraud or coercion.

Now, after saving the similarities between the market economy and the free market, it is also important to emphasize that the Freedom in a context of market economy is not total because there is a state participation in the regulation of prices.

The main criticism made by the liberalism This type of organization is that the state should only intervene in the market when the existence of monopolies is manifested, whereas, if this does not happen, it should not intervene.

So, taking into account the aforementioned considerations, the main concern around the market economy is to achieve optimal state intervention. and balanced and that grants the intervening parties the greatest possible freedom in order to achieve economic efficiency and the satisfaction of all social actors.

Advantages and disadvantages

Advantages include economic growth and increased competition, as long as resources are used efficiently and creates a competitive market.

Promotes the innovation and efficiency by encouraging companies to compete and always seek to excel.

It reduces the intervention of governments that respond to individual interests or represent power groups.

While among the non-positive issues we can cite the generation of an unjust social state that leads the state to intervene, the emergence of monopolies or oligopolies that reduce competition and increase prices, and an unequal distribution of resources.

Anyway and beyond these advantages and disadvantages, as in everything, if you practice and act with Balance, the best of the system will be achieved.

Topics in Market Economics