Market Economy

Market Economy

The social science that is responsible for studying the processes of production, exchange and consumption of products and services is known as economy . The term has its origin in the Greek language and means "administration 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 enter into a business relationship.

These two concepts allow us to approach the notion of market economy , which refers to the social organization aimed at facilitating 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.

This means that, although the market economy is usually considered the same as the free market , this freedom is not absolute since the State participates in the regulation of basic prices and through other decisions. Liberalism argues, on the other hand, that the State should only engage in the free market to guarantee the absence of monopolies.

The concept of market economy, on the other hand, has transcended the capitalism to derive in terms socialist market economy or market socialism , which is a combination between capitalism and socialism that has the market as the main economic institution. There is talk of a mixed economy to name state and private participation in economic regulation.

Economy, efficiency and opportunity cost

The main 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 ; getting them to 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 better 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 be based on the fact that in order to improve a person's well-being, it is necessary to worsen that of another person, in such a way that it is always necessary to favor those who have less possibilities and to reduce profits. those who more.

It is important that decisions are always made that advocate balanced production ; that is, to manufacture what is necessary, neither scarcely nor abundantly. Taking into account, in turn, what methods will be used in production, with what resources and what technology will be developed and how much will the entire process cost, based on what can be gained from it.

To conclude, it is important to mention another concept that is the opportunity cost . This term refers to the amount of goods that it is necessary to stop producing in order to produce one unit more than another. That is, it refers to the value of the good or service that is waived to bet on another.

The market economy is the one that ensures that production in all its aspects works and collaborates with the welfare of a country or territory. It also allows making good decisions regarding business relationships with other groups whose objective is to enhance production and the quality of life of the society it represents.

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