Market economy What is it?

This type of market is also known as the invisible hand of this sector. It is in charge of the organization of those factors such as production and consumption, which are important for society.

It manages to open the way to what is known in the financial world, as the laws of supply and demand. It is a liberal model, which is defended by people who say. That the state should have almost zero intervention in the affairs of the economy that a country has.

  1. Boundaries between the market economy and the command economy
  2. Market economy: Term
  3. market economy enunciation
  4. The free market and its conditions of economic interaction
  5. Laws in the market economy
    1. the perfect competition
    2. imperfect competition
  6. The role of the State in the market economy
  7. The managed economy
  8. The market economy and its advantages
  9. The market economy and its disadvantages
  10. market economy example

Boundaries between the market economy and the command economy

It is not known exactly when speaking where the limits are located between the market economy and the so-called directed economy. In other words, one in which the state conditions the economy for the fulfillment of a project of a political nature, with an ideological or social basis.

A discussion is also presented regarding various aspects of economics. For example, which aspects should be addressed and which should be left to the free market.

It is worth mentioning that this type of market. It is located in person around the entire capitalist world, to a greater or lesser extent.

Market economy: Term

The term market economy became popular during the Cold War. In those countries whose economy has been forged by so-called capitalism. Or that they are democratic countries or with their rule of law.

This led to the indiscriminate use of economic agents. To the free market and capitalism, as a result of a mix opposed to the Soviet communist bloc.

market economy enunciation

The function of a state is to find a tool that allows it to maintain all its economic processes with stability. Strictly speaking, a market economy is never akin to a free market.

In this type of market, the state, as is well known, is the main legal and political insurer. Of the minor conditions of stability, access to goods and basic services, those that are essential for a dignified life.

In addition, to allow the orientation of production and consumption for the stability of national economic processes.

The free market and its conditions of economic interaction

The free market supposes the total liberation in terms of the conditions of economic interrelation. This allows a better state of competence to be reached. Where the interaction that occurs between supply and demand, manages to organize financial processes in society.

The debate on this topic is ongoing. And it depends, to a great extent, on being understood exactly by the market economy. Since, for most, it is synonymous with a mixed economy, in which the state participates only in strict cases.

Laws in the market economy

The laws of the market point out, from classical liberal theories. A sustained increase in wealth that almost always achieves an ideal situation of competition, in which supply and demand are supplied in a complementary manner.

The type of competition is not free, it is regulated by two important factors: the law of supply and demand. In addition, imperfect and perfect competition.

the perfect competition

It is the one that develops at any time, in an ideal state. Its regulation depends solely on the law of supply and demand, which are equal and achieve stability.

imperfect competition

It is the competition that occurs when there are external factors to the market in which the economy participates. Such as: regulations, subsidies and state protections, or monopolies and competitions that occur unequally among companies.

market economy

The role of the State in the market economy

There is no consensus regarding what the state should regulate and what not. In the 1990s in Latin America, the neoliberal economy was born. Which led to less state intervention.

In other regimes, mixed economy. A free market agreement is reached, in which the State intervenes only in cases where rights must be protected. Among which are those aimed at the citizen. Such as basic services, or the protection of the national economy from events that could undermine its stability.

The managed economy

In a managed economy, the state allows market laws to manipulate at will.

Managed economy is named economic systems in which the state plays a leading role, allowing the laws of the market to work in its own way.

All within a basic framework that manages development for project fulfillment. Among the productive strengths of a country. With the protection of the most needy and with the control of the most powerful, in order to avoid unequal competition and monopoly.

The market economy and its advantages

The market economy has several advantages, among which are:

  • A lot of competitors. This brings as an advantage, much lower prices for the consumer.
  • Greater variety in the offer. With this, the consumer exercises a greater decisive range at the time of purchase.
  • Entrepreneurs run many risks, but promote initiatives. Which allows mobility in the economy of everything.
  • Economic freedom brings greater civil and political freedom for society. This is known according to data from economists.

The market economy and its disadvantages

They can only enter the economic game, those who have capital. In this way, the disadvantages that can occur in a market economy are the following:

  • Marginalize people with fewer resources. This is given, due to the lack of capital, therefore, they cannot enter the economic game.
  • Capital always rotates between the same social strata. Against class mobility, so that the poor always remain poor like this, the rich richer.
  • Extensive competition between the different strata. Although in many cases state intervention is achieved.
  • There is damage to the environment, this is presented as a variable in the so-called free economic theories.

market economy example

This type of economy makes a difference in relation to the technological tools that are used and their relationship with prices. As a new technological advance appears, it brings with it development and popularity.

At the beginning, the prices are high and only people with money can access it, so the supply is limited, but as demand increases, more competitors emerge with more purchase options, so the price will go down. and its consumption will be socialized.

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