The market economy is a social organization that aims to promote the production and consumption of services and goods that arise from the game between supply and demand.
The market economy is the social organization designed to facilitate the production and consumption of goods and services arising from the game between supply and demand . The State intervenes in the market economy by guaranteeing access to certain goods and imposing taxes and fees according to social needs.
It should be noted that the social science that is responsible for studying the processes of production, exchange and consumption of products and services is known as economics . The term has its origin in the Greek language and means “management of a house.”
The market , on the other hand, is the environment that allows the development of the exchange of goods and services . It is a social institution through which sellers and buyers establish a commercial relationship.
Characteristics of the market economy
This means that, although the market economy is usually considered the same as the free market , said freedom is not absolute since the State participates in the regulation of basic prices and through other decisions. Liberalism maintains, on the other hand, that the State should only get involved in the free market to guarantee the absence of monopolies.
The concept of market economy, on the other hand, has transcended capitalism to derive terms such as socialist market economy or market socialism , which is a combination between capitalism and socialism that has the market as the main economic institution. We speak of a mixed economy to refer to state and private participation in economic regulation.
In the market economy there is no absolute freedom because the State intervenes in the regulation of prices and other issues.
The importance of efficiency
The fundamental objective of the economy is to satisfy the needs of individuals and societies; These needs can be material or immaterial. For this purpose, there are productive activities , which offer specific goods and services that will solve said requirement.
The economy ensures that the distribution of these goods and services is correct ; ensuring that they can satisfy a greater number of people. For this purpose, it is necessary to take into account a series of important laws. They are based on the idea that all resources are scarce, therefore it is necessary to make good decisions to know how they will be best used.
One of the most important concepts that derives from this idea is efficiency . It is said that for an economy to produce efficiently it must start from the basis that to improve the well-being of one person it is necessary to worsen that of another, so that it must always seek to favor those who have the least possibilities and subtract profits from those who most
It is also important that decisions are always made that advocate balanced production ; That is to say, by manufacturing what is necessary, neither in a scarce nor abundant way. Taking into account, in turn, what methods will be used in production, with what resources and what technology will be developed and how much the entire process will cost, based on what can be earned from it.
The market economy and opportunity cost
It is necessary to mention another concept, which is opportunity cost . This term refers to the quantity of goods that it is necessary to stop producing in order to produce one more unit of another. That is, it refers to the value of the good or service that is given up to bet on another.
The market economy is what ensures that production in all its aspects works and collaborates with the well-being of a country or territory. It also allows you to make good decisions regarding commercial relations with other groups whose objective is to enhance the production and quality of life of the society it represents.