definition of market economy

The concept that will occupy us below has exclusive employment in the field of economy.

Economic system that is based on the game of supply and demand that determines the price of goods and services

The decisions of this economic system result through the market itself, being the interaction of supply and demand that will establish the quantity and the balanced price of the goods and services that are commercialized, and also the market is in charge of distributing income through possession of the factors of production.

Limited state intervention

Meanwhile, the state has the role of providing a legal framework that allows that free competition to take place effectively, that is, to protect property rights, mediate conflicts and act only in cases in which competition is limited, through subsidies.

The market economy Consists of the organization, production and consumption of goods and services within the framework of the supply-demand game, where buyers and sellers agree on the prices of products freely and with minimal state participation, in a context where monopolies that affect this situation prevail .

Defining characteristics

Among its most salient features we can mention: its decentralization, because conflicts are resolved between the parties; it works by means of signals such as prices; income distribution is distributed to workers based on their contribution to the production process and the owners of productive resources receive profitability in relation to the contributions of productive assets; competition pays serious attention to consumer interests.

And in a situation of imperfect competition, a fact that will demand a concrete and effective participation of the state to control and correct market failures and also to guarantee participants access to goods and services..

The imperfect competition It is a typical market failure situation characterized in that a single market agent, or a few, have the possibility of manipulating the conditions of the product or service, and are also capable of influencing the formation of prices.

The worst consequence of this economic scenario is consumer dissatisfaction.

Link to the free market

It should be noted that this concept is equated with that of free market, since it is precisely characterized because the prices of the products are agreed by sellers and consumers from the laws of supply-demand.

Meanwhile, for the existence of this system, yes or yes, it is necessary that there is free competition, the voluntariness of the parties, that is, between those who intervene in a transaction, there cannot be fraud or coercion.

Now, after excluding the similarities between the market economy and the free market, it is also important to note that freedom in a market economy context is not total because there is a state participation in the regulation of prices.

The main criticism made by the liberalism This type of organization is that the state should only intervene in the market when the existence of monopolies is manifested, while, if this does not happen, it should not intervene.

So, taking into account the aforementioned considerations, the main concern around the market economy is to achieve an optimal and balanced state intervention that gives the intervening parties the greatest possible freedom in order to achieve economic efficiency and satisfaction. of all social actors.

Advantages and disadvantages

Advantages include economic growth and increased competition, as long as resources are used efficiently and create a competitive market.

It promotes innovation and efficiency by encouraging companies to compete and always seek to excel.

It reduces the intervention of governments that respond to individual interests or represent power groups.

While among the non-positive issues we can cite the generation of an unjust social state that leads the state to intervene, the appearance of monopolies or oligopolies that reduce competition and increase prices, and an inequitable distribution of resources.

Anyway and beyond these advantages and disadvantages, as in everything, if you practice and act with balance, you will achieve the best of the system.