The market economy is an economic system that is also called a free market economy. It applies economic decisions that contribute to determining production and consumption resources, the nature of competition between establishments, and price levels; By relying on the implementation of a set of procedures for establishments and individuals; Which contributes to achieving economic interests, and the market economy is defined as the economic system that is concerned with monitoring prices and production in a market; Through the study of competition between enterprises within the private sector.Another definition of the market economy is the economic sector in which services and goods are sold, and contributes to determining the nature of supply and demand in the economic environment of a particular market.
Characteristics of a market economy
The market economy is characterized by a number of characteristics, namely:
Private property: It is one of the features and characteristics of a market economy; As most of its services and products are owned by the private sector; Which helps the owners and owners of companies to conclude legal contracts for leasing, selling or buying; That is, the assets owned by individuals give them the right to obtain profits based on their ownership of them.
Freedom of choice: is to provide the owners and owners of companies with freedom to produce products and services, and then sell or buy them within the competition market, but this freedom is controlled by two restrictions: the nature of the price for buying or selling products and services, and the amount of private capital For every company owner.
Self-motivation towards interest: It is one of the basic characteristics of a market economy; The owners of companies seek to sell their products by putting them on the market, and the sale is often carried out after holding negotiations through which individuals seek to obtain the products at the lowest possible prices, but the owners of companies sell them for the highest price offered. The system of negotiations and auctions also contributes to providing benefits to the economic system; It helps determine the prices of services and goods within the market, and gives a realistic picture of the nature of demand and supply at any time.
Competition: It is the emergence of a challenge between low prices within the market, and competition contributes to ensuring the provision of services and goods that are characterized by production efficiency, and the increase in demand for these products leads to an increase in their prices based on the law of demand, and this thing stimulates competitors to increase their profits; By continuing to produce, which leads to the addition of these products to the display, and this results in a decrease in prices that contributes to the survival of the best competitors in the market.
The system of markets and prices: It is one of the characteristics that characterize the market economy; It depends on the existence of a market system that helps producers, sellers, and consumers obtain similar information about the products and services that are provided in the market.
The limited role of government: is the absence of any direct economic effects for the government in the market sector of the market economy, but governments are keen to implement their role by providing defense and protection for these markets, and ensuring that all investors and owners of private companies have equal opportunities to work In the market.
The benefits of a market economy
The market economy is distinguished by the fact that it offers a number of benefits to various business sectors, the most important of which are:
Increasing market efficiency: It is the development of the market based on competition between various companies, so that each company seeks to provide all the necessary things that contribute to enhancing its ability to compete with other companies similar to it in the field of work.
The emergence of many innovations: it is one of the important benefits of a market economy; Companies are interested in innovation, so they are always looking for new products; In order to sell it in the best and least expensive way.
Attracting foreign investments: It is the role of the market economy in providing opportunities for foreign investors to participate in diverse markets; Which leads to a lot of financial profits for countries that apply this economic system in their business environment.
The emergence of a group of diverse commodities: it is one of the main benefits of a market economy; It contributes to providing many types of consumer products that individuals can buy in return for paying for them.
Disadvantages of a market economy
The market economy suffers from defects that affect it negatively, including:
Absence of investment priorities: This is one of the main defects of the market economy. Where financial wealth is directed to achieve the highest amount of profits, and not to care about the things that individuals really need.
Non-use of industrial energy: It is one of the negative effects of the market economy; It leads to the spread of many unsold products, and many machines stop working, with the emergence of many necessary needs for individuals.
The exacerbation of social inequality: It is one of the shortcomings of the market economy. As this leads to inequality in social relations, the rich become more wealthy, while the poverty rate increases among the poor.
The spread of economic crimes: It is one of the negative aspects of the market economy. It leads to the strengthening of some people's attempts to obtain money illegally, especially when there are no legal means to help obtain money.
History of the market economy
The history of the market economy goes back to the beginning of trade between people; As many free markets appeared as a picture of social life, and with the passage of time the term market economy appeared, which was based on two main pillars: private ownership and trade exchange. The market economy faced resistance from the central authority; Because the trend towards specializing in work contradicts the feudal classes in Europe, and all modern economists agree that the market economy is one of the economic systems with high productivity in various sectors of production.