market economic system - a model of the economy that relies on self-regulation of the market and operates on the basis of commodity-money relations and private property.
In this case, only the direct buyers and suppliers of goods and services form the structure of the distribution.
market economic system functions only, subject to certain principles in relations between economic agents.
1. Economic freedom
This principle means that every economic entity is guided by its own interests and is responsible for their actions.The condition for the implementation of this principle is private property, which applies to property, income and production resources.
For the entrepreneur economic freedom means being able to start their activities in any field and reach the goal of maximizing their income from the project by all legal means.
economic freedom for the consumer provides a wide selection of goods and services, to achieve optimal use of their income in order to obtain the highest benefit for themselves.
2. Competition
This principle means competition for the best implementation of its economic interest.The competition can not exist without economic freedom, and without a market economic system is not possible.
distinguish perfect and imperfect competition.The first involves several conditions:
- a large number of buyers and manufacturers, so that nobody can dictate and determine the price in the market;
- every buyer and the seller is free to enter the market (to participate in the production, purchase or sale) and freely out of it (to stop its involvement), since there is no legal and institutional obstacles to this;
- certain goods market are about the same in quality or homogeneous, ie do not offer customers the advantages of each other (in this case all buyers to sellers are the same);
- buyers and sellers are equally fully informed about market prices and know the situation on the market;
- buyers and sellers do not have the ability to collude in order to obtain benefits.
Imperfect competition begins when violated one or more of the above conditions.
market system often exist in conditions of imperfect competition, as to comply with all the requirements of the perfect is almost impossible.
3. Self-regulation
This principle means that, despite the large number of producers and consumers, significant differences in the interests of their activity is coordinated automatically, thanks to competition and the free formation of prices.Market economic system implies that prices are formed by mutual consent of consumers and producers.
This principle of self-regulation of the market was first formulated by prominent economist Adam Smith, who lived in England in the 18th century.In his book "The Wealth of Nations," he suggested that it was the economic self-interest, that is, the desire to realize their own interests, forces the manufacturer to create exactly what customers need, while respecting the minimum price of goods."The invisible hand of the market" directs the manufacturer to such purposes that do not belong to its original intentions.
That is what we are witnessing now: the market economy is the best promotes charity, social services, development of technologies and improve the overall standard of living.
Thus, the market economic system assumes that every person under the influence of his own advantage, will inevitably prefer to perform the actions that best serve the public interest.
