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How does a market economy work? - . - 12-17-2012 06:54 PM
All market included persons may decide, not only a small group of decision makers. How does this work?
Does it just mean that the government stays out of market affairs? So that every liberalization comes closer to an market economy?
- Damien Molnar - 12-17-2012 07:02 PM
A market, by definition consists of all buyers and sellers (groups or not) willing and able to exchange a particular good or service.
A pure market economy is one in which the government has no involvement. In reality, this will obviously not be desirable due to the benefits of public goods and externalities.
Due to the free-rider probem, public goods won't be provided by an unregulated market and thus the government must step in and correct this market failure.
The reason underlying market failure is that the total benefits (demand) and costs (supply) of consumption/production are not reflected in the market as individual decision makers are motivated only by self-interest. They do not consider the environment or additional benefit of immunisations, for example.
- Sipra M - 12-17-2012 07:02 PM
Market Economy:
*Demand and supply decides the production , consumption and distribution of resources of the economy.
* Therefore price is determined by demand and supply( 1st. introduced by Adam Smith with his idea of Invisible Hand).
* Minimum interference by the authority except for security and market correction. for social benefit.
* Producer and consumer sovereignty.
* Market economy is also known as Capitalist economy, nearest example is USA