Market economy

A market economy is an economy in which goods and services are traded according to their exchange values. That is, what is being offered has a value in terms of being able induce one to part with something of value in exchange. What exchange value something has may be subject to any number of criteria.

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It is associated with the concept of entrepreneurship and private ownership of capital. Individual market participants, such as privately owned businesses, agencies controlled by the state and consumers buy and sell their products on markets. The price is determined by supply and demand.

Related Topics:
Entrepreneurship - Market - Supply - Demand

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Entrepreneurship implies that business owners make decisions about their activities in such a way as they deem fit to make profit. According to the theoretical model of Adam Smith, if every individual market participant acts selfishly, this would benefit the economy as a whole. However, it is often said that "market failure" is a frequent occurrence in a market economy. Some believe government should intervene to prevent market failure, while others believe that government's should not diminish market freedom to remedy what some regard as market failure. The theoretical model of a large-scale free market economy does not occur in reality, however free market transactions may take place in the underground economy.

Related Topics:
Adam Smith - Market failure - Free market economy - Underground economy

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In the model of a social market economy the state intervenes where the market does not fulfill the needs of the market participants. This concept is based on the ideas of John Rawls.

Related Topics:
Social market economy - John Rawls

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Market economies are normally always linked to capitalism. But not in all cases. It is a very strong way for new countries to florish and earn a good trade representation for them selves.

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