market economy

Examples of market economy in the following topics:

• Differences Between Centrally Planned and Market Economies

  • The key difference between centrally planned and market economies is the degree of individual autonomy.
  • A pure market economy, or capitalist system, is one perfectly free from external control.
  • Although they avoid many of the inadequacies of planned economies, market economies are not free of their own problems and downfalls.
  • Despite these and other problems, market economies come with many advantages, chief among which is speed.
  • Because they do not need to wait for word from the government before changing their output, companies under market economies can quickly keep up with fluctuations in the economy, tending to be more efficient than regulated markets.

• Economic Systems

  • Markets and command exist in traditional economies.
  • Tradition and markets exist in command economies.
  • Western industrial societies categorized as "market-oriented" economies rely primarily on exchange, but contain elements of tradition and command.
  • In market economies tradition is important to such decisions regarding values, expectations about behavior (trust, loyalty, etc.), fashion, preferences about housing, choices about occupations and geographic preferences.
  • Command is also found in market economies as regulations and laws regarding the allocation or resources and goods.

• The Role of the Financial System

  • A financial market or system is a market in which people and entities can trade financial securities, commodities, and other fungible items.
  • There are both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded).
  • An economy that relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy, in contrast either to a command economy or to a non-market economy such as a gift economy.
  • Financial markets are associated with the accelerated growth of an economy.
  • Equity markets are the most closely followed of the financial markets.

• The Function and Nature of Markets

  • A market economy is an economy in which decisions regarding investment, production, and distribution are based on supply and demand, and prices of goods and services are determined in a free price system.
  • The major defining characteristic of a market economy is that decisions on investment and the allocation of producer goods are mainly made through markets.
  • This is the opposite of a planned economy, where investment and production decisions are embodied in a plan of production.
  • Free markets may have different structures: perfect competition, oligopolies, monopolistic competition, and monopolies are all types of markets that may exist in a capitalist economy.
  • The most basic models in economics assume that markets are free and experience perfect competition - there are many buyers and sellers so no individual actor may affect a good's price; there are no barriers to exit or entry; products are homogeneous; and all actors in the economy have perfect information.

• Mixed Economies

  • A mixed economy is a system that embraces elements of centrally planned and free market systems.
  • A mixed economy is a system that embraces elements of centrally planned and free market systems.
  • While there is no single definition of a mixed economy, it generally involves a degree of economic freedom mixed with government regulation of markets.
  • As a result, the market is generally the dominant form of economic coordination.
  • However, to mitigate the negative influence that a pure market economy has on fairness and distribution, the government strongly influences the economy through direct intervention in a mixed economy.

• Economies of Scale and Network Externalities

  • Economies of scale and network externalities discourage potential competitors from entering a market.
  • They discourage potential competitors from entering a market, and thus contribute to the monopolistic power of some firms.
  • A natural monopoly arises as a result of economies of scale.
  • This makes it difficult for new companies to enter the market and to gain market share.
  • Define Economies of Scale., Explain why economies of scale are desirable for monopolies

• Continuity and Change

  • First, and most important, the United States remains a "market economy. " Americans continue to believe that an economy generally operates best when decisions about what to produce and what prices to charge for goods are made through the give-and-take of millions of independent buyers and sellers, not by government or by powerful private interests.
  • In a free market system, Americans believe, prices are most likely to reflect the true value of things, and thus can best guide the economy to produce what is most needed.
  • And they pressed vigorously for other countries to reform their economies to operate more on market principles too.
  • Chapter 5 explains the role of the stock market and other financial markets in the economy.
  • As these chapters should make clear, the American commitment to free markets endured at the dawn of the 21st century, even as its economy remained a work in progress.

• Infant Industry Argument

  • Economic markets are inherently competitive and newer economies are vulnerable to their more developed counterparts in other countries.
  • Economic markets are inherently competitive, and newer economies are highly vulnerable to their more developed counterparts in other countries for a variety of reasons.
  • Despite the standard argument from mainstream economists postulating that free trade and open markets is the ideal system to allow for capitalistic development, there are many economists who believe that some degree of protectionism is the only way to minimize income gaps and substantial inequity from economy to economy (see ).
  • The reason for this is quite simply the significant jump in prosperity as international trade expanded, and the huge capacity for specialization, economies of scale, technology sharing, and a host of other advantages that have been a direct result of free global markets.
  • The basic premise behind economies of scale is that higher production quantity reduces cost per unit, ultimately allowing for the derivation of economic advantage in the market.

• Managing the Business Cycle

  • When the economy is not at a steady state, the government and monetary authorities have policy mechanisms to move the economy back to consistent growth.
  • When the economy is not at a steady state and instead is at a point of either overheating (growing to fast) or slowing, the government and monetary authorities have policy mechanisms, fiscal and monetary, respectively, at their disposal to help move the economy back to a steady state growth trajectory.
  • If the economy needs to be slowed, these policies are referred to as contractionary and if the economy needs to be stimulated the policy prescription is expansionary.
  • Fiscal authorities will increase government spending in order to revive the economy.
  • Expansionary monetary policy relies on the central bank increasing availability of loanable funds through three mechanisms: open market operations, discount rate, and the reserve ratio.

• Aggregate Expenditure at Economic Equilibrium

  • An economy is said to be at equilibrium when aggregate expenditure is equal to the aggregate supply (production) in the economy.
  • The GDP of an economy is calculated using the aggregate expenditure model.
  • An economy is said to be at equilibrium when aggregate expenditure is equal to the aggregate supply (production) in the economy.
  • The economy is constantly shifting between excess supply (inventory) and excess demand.
  • This belief is parallel to Adam Smith's invisible hand - markets achieve equilibrium through the market forces that impact economic activity.