Market economy

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World & Business - Finance
Thursday, 16 December 2010 22:20

If we hear daily reports of more traditional media, we can come to understand that there are concepts that nobody tells us. In addition, if these concepts, some media tend to misuse them , chaos is inevitable. Most reporters, when confuse different terms, especially in a terrain so rugged as is the economy , are not plainly wrong to use them. This usually happens very often with the term market economy.

market economy

The economy the market would then, the organization and allocation of production and consumption of goods and services arising from the relations established between supply and demand. All this goes together with a possible involvement of the state can intervene to ensure access goods , impose prices on certain products considered basic necessities impose taxes and fees .

The most common mistake when talking about this term is the identification of the market economy as free market and capitalism . This is incorrect because when comparing the market economy with free market, the similarities are nil. The concept of market economy we have that the state may intervene in regulating the market. However, to ensure compliance with free trade, must have complete freedom with respect to the movement of goods and services according to demand .


Something about the invisible hand

One of the fathers of modern economics , Adam Smith , defends the concept of the invisible hand as natural law to the behavior of supply and demand in a market economy. Producers and consumers interact on the market. It is assumed that both types of traders assume the price of the property as a given fact, and from there they would take their production and consumption decisions, maximizing the gain in the case of vendors and maximizing the utility function (satisfaction ) for consumers. Their participation, giving and demanding quantities of goods and services, in turn alters market conditions affecting the evolution of prices .

E theory, free trade acts with complete freedom to set prices when supply and demand, the economy would be more just and equal that of a market economy with free markets.