How Market Economy Works

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A market economy pertains to the economy in which the prices of products depend on the supply and demand. The economy also depends on the market forces.

This is somewhat complex that is why it is important to clearly understand how market economy works.

The System of “Invisible Hand”

Facing economic problem is very common in every society throughout the history. The problem arises because of the limited resources in such a way that it is difficult to decide what to produce and the target market. Nowadays, there is two economic systems competing – the market economy and the command economy. The market economy is focused on private enterprises. The command economy failed to support the economic growth as well as economic security for the citizens. Thus, market economy becomes popular. On the other hand, many people still do not understand the concept of market economy despite of being successful in Western Europe, Asia and North America.

Moreover, market economy employs a set of tested practices that show societies and individuals can live and become prosperous economic-wise. This means that market economy is flexible, decentralized, changeable and practical. What makes this kind of economy distinctive is that there is no center and it employs “invisible hand”. Despite of being practical, the market economy also relies on individual freedom. The individual freedom allows the consumers to choose the best products and services. It also gives freedom to producers to expand their business and take the risks and rewards. In like manner, workers can also choose freely the career they want to take and even in changing employers or joining with labor union.

Furthermore, market economy also involves inequities yet it preserves the freedom and at the same time provides wide possibility for prosperity and economic growth. Thus, the risk and opportunity joins together to establish the market economy as well as political democracy. Through the freedom provided by the market economy, producers, workers and consumers have made their way to use their economic resources in order to satisfy the people. Engaging in the market economy can enjoy the goods and services nevertheless it is required to work hard, save, invest and spend carefully.
The system of market economy encourages business owners to change their behavior in competition. Keep in mind that to be successful in the business you should produce good products, sell at market prices, and pay the employees wages and treat customer in a courteous manner. The system of market economy is seen as led by invisible hand in such a way that it uses the resources efficiently. In this way, the person has the rights to enjoy the profits by offering the best products at reasonable costs. Therefore, the main objective of market economy is to provide quality products and services to satisfy the demands of consumers by doing the process systematically.

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