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Define market economy 2022

 Market economy 

A market economy is a type of economic system; Where individuals and establishments are free to exchange and transfer services and goods without any barriers, and resources are allocated through this system by relying on the market institution , and the price mechanism related to the equation of demand ( consumption ) and supply ( production ), without any interference from the state in the production process. , The market economy is defined as an economic system based on granting freedoms to individuals; That is, they have the right to engage in the economic activities they want, as it depends on private ownership of the means used in production , and it is also called a free economy.Another definition of a market economy is a system in which economic decisions and prices for services and goods depend on interactions between the firms of individuals in a country.

The emergence of the market economy 

The origins of the market economy go back to the economist Friedrich Hayek; Where he sought to design this theory to confront the Keynesian economy, which depends on government intervention to maintain market stability . Hayek rejected government interventions in the markets, considering that the market is capable of self-correcting itself, with its ability to achieve well-being and freedom for all individuals away from any restrictions; Therefore, he considered that this type of economic system constitutes an ideal guarantee for capitalism that contributes to achieving prosperity for the people.

market economy theories

 The market economy relies on theories aimed at studying its content and performance, as well as trying to explain matters related to the exchange value of goods, or known as the prevailing price. The following is information on the main theories of market economy:

  • The traditional theory: is an intellectual theory associated with the economic thinkers Adam Smith, David Ricardo, and William Petty; Where they were interested in studying the performance of the market economy, and according to this theory, the value of goods is determined based on the amount of work devoted to their production, and is not applied in practice except after the implementation of the exchange process, and access to the market price, which is affected by fluctuations associated with changing conditions, and the nature of the behavior of both traders and consumers, And they are two forces in conflict with each other, when their interests meet together, the market price is produced, and achieving balance in the exchange of goods is an important condition for producers to continue to apply the production process, and the appearance of any changes in demand and supply affects the price of the commodity, it may decrease, increase, or equal its value.
  • Marxist theory: is an intellectual theory associated with the thinker Karl Marx; Where he used it to criticize the traditional theory ( capitalism ), and relied on it in explaining the market economy by using the method of materialistic dialectic to analyze this economy, and he also agreed with the owners of the traditional trend about determining the value of a commodity by the time spent working on its production, but it is not an eternal relationship but is subject to various changes With the changing conditions prevailing in society , Marx was greatly interested in the presence of capital in the hands of a few producers, their control in determining the value of goods within the markets, and the methods used in the distribution of wages; Where the largest share of income - in the form of profits - owns a group of few owners of capital, and in return the majority of workers are satisfied with obtaining the largest share of income in the form of wages.
  • Marginal theory: It is a theory of thought that follows the new capitalist thinkers, such as: von Bawerk and Alfred Marshall, and this theory sees that the market economy appears as a result of a relationship between individuals and things; In the sense of focusing on the benefit of the commodity, and this benefit contributes to determining the value of the commodity; Because man is constantly looking for a way to satisfy his needs and achieve the best profits, so he seeks to determine the value of a particular thing based on the marginal benefit that can be obtained from it; The marginal value expresses the relationship between a commodity and a person. When the human need for a commodity increases, this leads to an increase in its value; Therefore, the market economy is concerned with achieving the best profits by relying on the production of tradable commodities, which contribute to meeting the desires and needs of individual consumers.

Principles of a market economy

 Economic theories contributed to the development of a set of principles that led to the formation of the law on the market economy . The following is information about these principles:

  • Private ownership of the means of production: It is the requirement of the market economy system that the ownership of the means of production be for individuals, and these means constitute the main capital approved through this economy; Therefore, individuals obtain the right to own and control these means, and to use them according to the things appropriate to their individual interests, and they also have the right to trade products in the market for the purpose of obtaining a profit; This leads to a group of individuals monopolizing the economic surplus compared to individuals who do not own these means and who are keen to work in return for a specified salary.
  • Freedom of trade and production : is the dependence of the market economy on spontaneous or spontaneous circulation influenced by the various forces of the market; Where the owners of capital are interested in managing their projects according to their own interests, they have the freedom to choose the method of commercial circulation and production; Since the main goal is to reach the largest possible amount of profit .
  • Formulating prices based on demand and supply: It is one of the main axes in which the market economy is concerned; Where merchants and consumers meet together through the confluence of demand and supply of goods, prices are the central point of convergence between the parties to the market.
  • Obtaining profits under monopoly and competition: It is one of the most important characteristics associated with the economic activity of the market economy. In-kind or material profit is obtained in the presence of perfect competition, and the absence of any restrictions that determine the prices of goods, as capital owners seek to gather together within monopolies They contribute to reducing the negative effects of competition related to their projects, and the ultimate goal of these monopolies remains to face competition within the markets.
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