Advantages and disadvantages of the market.

Most countries build national economic model based on market principles.Many states managed to develop a strong, competitive economy.Others are in the stage of transition to it.How does the free market?What is the role of the state in its development?

What is the free market

According to popular definition, a free market - is based on the processes samoreguliremyh system of relationships between entities that produce goods and services, and those who buy them.Its main elements - the price, demand, supply.The ratio of the latter two components determines the parameters for the first.

market generates the appropriate type of economy, which is often contrasted with the planned system of organization of the national economy.It, in turn, parameters such as price, supply and demand, largely regulated by the state.

Pros and cons of a market economy

What are the advantages and disadvantages of the market, as well as appropriate economic system?The advantages of the experts include:

- high efficiency in terms of the distribution of public resources;

- adaptability of the economy to changing external factors;

- the relevance of the implementation of scientific and technological developments;

- opportunities for self-employment and entrepreneurship;

- response of the economy to the needs of society.

there are also disadvantages.The disadvantages of markets include:

- in many cases, an excessive use of natural resources;

- social risks (unemployment, crises);

- speculative bias of many firms.

However, with adequate state intervention mentioned disadvantages largely nullified.In many countries, the above points to the shortcomings of the market are rather nominal.Model in which the power structures involved in market processes, often referred to as a mixed economy.In practice, it is used in most modern states.The free market in pure form in any country of the world today, as analysts say, is not present.

market and the state

consider how the state can behave in a market economy.The intervention of the authorities may be carried out on two main levels.The first - institutional.Within the framework of his state is mostly fiscal and monetary policy, largely overlap with aspects of the international (which is almost the exclusive prerogative of the authorities).The second level - the involvement of the state in the sphere of economic activity.That is, when the authorities in various spheres, "substitute" a business.In some segments of the national economy the state plays the most important role?Experts identify the following:

- credit market and banking;

- foreign trade;

- education, health and public order.

In a market economy, the role of the state in the first level is reduced mainly to optimize the allocation of capital.The second - to encourage the implementation of economic entities of certain social functions, in some cases - the regulation of supply and demand.As all this is happening in practice?Consider the corresponding aspect.

State as a regulator

At the institutional level, the exclusive prerogative of the state - taxes (and related charges - fees, payments to social funds, and so on. D.).By raising and lowering the corresponding rates, canceling them or introducing new authorities thereby regulate the distribution of capital between the private sphere and the budget.

Another area of ‚Äč‚Äčabsolute competence of the state - monetary policy.Power structures, mainly in the face of the Central Bank and the relevant executive authorities in charge of the issue of money, the establishment of key interest rates, issuing bonds on the international market, and so on. D. And it is also a mechanism of redistribution of the national capital.

State as a business structure

second mechanism - it is part of the state in economic activity as if it were a business unit.As well as private organizations, state-owned enterprises (those in which the government owns the dominant share of the stock or capital) produce goods, provide services, pay taxes.

In a sense, government agencies employ the advantages of the market, such as, for example, the ability to compete with other business units.The practical significance of this mechanism can be alternatively in stimulating the desire for private companies to comply with social standards.A simple example - banking.It is known that the largest financial organizations in Russia based on the structure of their capital - state.Accordingly, the power of using in building its business policy or that the standards can not help stimulate the private banks to repeat them or to offer competitive alternatives.How?

Social standards state

This may include, for example, the level of wages.If state-owned banks will increase the salaries of employees, then private lending institutions will be forced to do the same.Similarly, - the level of service.If the person in the State Bank will serve better than in private, he has no reason to handle the case when the second.As a result - increase the level of service everywhere.Above we noted that the benefits of the market is forming a mechanism of social protection of citizens.In the case of government intervention, this aspect can be traced most clearly.

structure of the market economy

What is the structure of the market economy?Mainly, it is determined from the spirit operating in its entities and relationships between features.Consider something, and more.The market economy in Russia and most other capitalist countries of the world represented by the following set of subjects:

- individual entrepreneurs and private organizations;

- state business;

- salaried employees who are, in fact, sell their labor as a service;

- banks;

- consumers (households).

In turn, each of these types of subjects classified into a large number of subtypes.For example, entrepreneurs and private organizations as well as government businesses are operating in various segments:

- industry;

- trade;

- services.

In turn, each of the segments and divided into specific areas.

What are the conditions under which a market economy can function fully implemented?Experts call the following.

Factor property

institution of private property - a criterion that is recognized by many analysts the key.Any product, trademark, brand (ie. E. That, in fact, generates capital) should be in the owner's possession.Only in this case he will be able to feel a full-fledged player in the private market.Additional criteria related to the property - the existence of legislative mechanisms for its protection.This is important from the point of view of stability of the economic system.In some countries, historically making the transition to a market economy, private property is present, but the mechanisms of its protection, things were not so good, because of poor-quality study law.Actually, this is the following criterion.

Legal acts

functions of the market economy can be fully realized only with adequate legislation.One of the aspects that reflect the importance of this criterion, we identified above - need to protect private property.The other, which requires a clear legislative regulation, - a civil relationship.

business is contract - with other enterprises, with citizens, with international players.The quality of collaboration depends on how comfortable for entrepreneurs can be the content of the relevant agreements on the basis of legislation.Immunity - is also a significant factor (businessman should feel that the implementation of the other contractual terms and conditions supported by legal regulations).

Market Infrastructure

third component - the market infrastructure.It's pretty capacious concept.As a rule, experts include such a mechanism, such as banking, lending institution, the stock exchanges.That is, private enterprises should have equal access to infrastructure resources of goods and services.

All three of these criteria is a far from complete list.However, at least they have proven their applicability in the historical aspect.Those countries that have made the transition to a market economy, in particular those that were in the former sotsbloke, organized the appropriate transit from one system to another, working in these three directions.

market and competition

One of the key features of a free economy - competition.It was she, as many economists, determines many of the benefits of the market that we have identified at the beginning of this article.If competition in any segment is, it is very likely will determine a fair price for the goods and services, their quality, technological, social orientation, and so on. D. If it is not - it is quite possible that entrepreneurs will establish monopoly prices fortheir products and services, which also may be of poor quality.

There is another interesting point regarding the competition.She suggests that the low level of competition in certain segments - that's good.Why is that?The fact that it gives businesses the opportunity to bring to market a brand-new products and services.Not so much to occupy a niche, how to stimulate the emergence of new, had not previously existed.In highly competitive markets, in turn, the businesses concerned mainly about reducing costs, on the margins, on how to survive competition with their opponents.And because the innovative aspect can be given not so high attention.At least because businesses can not find funds for the implementation of some new developments.

There is such a term as "perfect competition."What it is?What are the advantages and disadvantages of the market of perfect competition?We consider this aspect in more detail.

Perfect competition

considering the advantages and disadvantages of the market, we touched on this question, as the focus of speculative activity of the enterprises.What does it mean?Mainly the fact that firms tend not to improve its business model, and to building mechanisms to increase capitalization, and, moreover, as soon as possible, at any cost.Under perfect competition, the opportunity entrepreneurs is practically reduced to zero.Why is that?

assumed that under perfect competition in the market at the same time there is a very large number of players in the same segment.That is producing the same products or providing the same services.Typically, the profitability of each of the businesses that operate in such an environment is low.However, new entrepreneurs is easy enough to get into this market - it "warmed up", there is a demand.However, the possibilities for speculation is virtually absent.In order to extract more profits, have not so much to improve the model of management of financial flows, as work to improve the quality of goods and services, to improve the interaction with suppliers and contractors in order to reduce costs.

Is there a limit of perfection competition?

Perfect competition - it is not only these benefits.And disadvantages of market functioning in the framework of these mechanisms, too.Mostly they affect the social aspect.If a particular segment of the economy there is perfect competition, it is, firstly, with a high probability indicates a sufficient saturation of the market in terms of jobs.People receiving quite recently demanded profession, may have difficulties in finding jobs.Since this factor is closely correlated one - the salary.When perfect competition, it usually does not grow.Just because companies do not have the possibility to increase it - all available funds are used to improve the product or service.

Aspect saturation

Thus, we have considered and the advantages and disadvantages of the market of pure or perfect competition.However, it is worth noting that his alignment - a process rather natural than regulated.Sooner or later every business segment is saturated with players.For example, in the early years of the market economy in Russia was characterized by a very low level of competition, in many cases, high prices and, as a consequence, high-margin businesses.Now, in many segments of the situation is different.Businesses become more stabilized prices, the profitability of companies has decreased.However, in many cases also increased the quality of goods and services.Overall, the world economy, world markets - when it comes to countries in which there are conditions for the functioning of the free economic model - developed in the framework of similar laws.