The paper "Characteristics of a Market Economy" is a good example of macro and microeconomics coursework. A market economy is said to be that system of the economy where decisions regarding the economy are made. Such decisions may include pricing of goods and services. This system is guided by the interaction that exists between businesses and citizens of a country. It, therefore, stipulates that the government is less involved in the market system thereby less interaction should be involved if the market considers itself to be free. As opposed to central planning in the economy, the government in such an economy is the one held responsible for any decision-making policies.
This thereby means that market economies work on the assumption of market forces that consists of demand and supply of goods and services (Rao, 1998). These two aspects are the best basis to decide what is good for the country in terms of economic decisions made by the producers and consumers. In a country that takes these determinants, the government is less involved in activities such as fixing of prices and industrial subsidization. Having done research on most developed countries, it has been found that they practice mixed economies but in a way practice market economies where market forces are the main determinants of economic activities and decisions.
This thereby makes them involve the government in some ways as it is seen as an approach to establish their stability. The market economy in recent decades has been entirely a requirement rather than a choice in a global market setting but there is an answered question of if the government really needs to participate in such economies in order for the markets’ operations to be efficient (Sirico, 2012).
The best advantage a market economy is said to have is the flexibility exercised in demand and supply as customers are always willing to pay any price for the goods and services they desire. Characteristics of a market economy There are various characteristics possessed by a market economy and to start with, it should have limited government control. The only work that the government is authorized to have is to make sure markets are working effectively and efficiently.
Some of the responsibilities that it should have been providing for the country security in the economy so that no other country can disrupt the economy. It should also make sure that there are equal opportunities given to citizens to enter the market. This as an example is where they charge heavy penalties to monopolies as though they are important to the economy; they limit other investors from starting similar companies. It is the work of the government to ensure that fairness is conducted in the market in terms of information and resources (Sirico, 2012).
Competition is another feature of a market economy where it is through competition that prices are moderated and there is an efficient provision of goods and services. Taking the law of demand, an increase in demand for an item translates to an increase in price. Competitors may take this opportunity to come up with better production meaning the increased supply of products thereby lowering the price. Due to the availability of substitutes, there is an equal sharing of profit by all investors and reduces the pressure a consumer may have in adding an extra amount to purchase something.
Only the strong competitors are able to withstand competition and it is through them that a market economy is created. A market economy owns private property where goods and services belong to an individual or a group. This, therefore, makes the sellers have the ability to enter into contracts where they can negotiate with the buyers on the terms and conditions they seem comfortable with. It is through the legality of owning individual property that investors have a right to acquire profit (Rao, 1998).
The motive of self-interest is another characteristic in a market economy. This is due to the fact that sellers try to sell their products to the highest bidder and at the same time, the sellers are willing to pay a lesser amount for the goods and services that their buyers want. This can be a contradiction as the sellers are seen to have a selfish interest as opposed to the buyers but this technique works best for the economy given a long-run period of investment.
Lavigne, M. (1995). The economics of transition: from socialist economy to market economy. New York: St. Martin's Press.
Medema, S. G., & Boettke, P. J. (2005). The role of government in the history of economic thought. Durham: Duke University Press.
Rao, C. P. (1998). Globalization, privatization and free market economy. Westport, Conn.: Quorum Books.
Samuels, W. J. (1989). Fundamentals of the economic role of government. New York: Greenwood Press.
Sirico, R. A. (2012). Defending the free market: the moral case for a free economy. Washington, DC: Regnery Publishing.