21. What is a market economy?

The market economy is an economic system in which national economic decisions are the result of decisions of individual buyers and sellers in the market place.

In a market economy the fundamental economic questions are answered in the marketplace by the interaction of buyers and sellers. For example, the question of what to produce may be based on what trend is popular right now. Since consumers like products with low prices and high quality, producers in a market economy will try to supply such products.

A market economy has several major advantages. First, a market economy is flexible and can adjust to change over time.

The second major advantage of the market economy is the freedom that exists for everyone involved.

The next advantages of the market economy are the lack of significant government intervention and the incredible variety of goods and services available to consumers.

22. What advantages does a market economy have?

The market economy is an economic system in which national economic decisions are the result of decisions of individual buyers and sellers in the market place.

A market economy has several major advantages.

First, a market economy is flexible and can adjust to change over time.

The second advantage of the market economy is the freedom that exists for everyone involved. Producers are free to make whatever they think will sell. Consumers on the other hand are free to spend their money or buy whatever goods and services they wish to have.

The third advantage of the market economy is the lack of significant government intervention. Except for national defence, the government tries to stay out of the way.

The final advantage of the market economy is the incredible variety of goods and services available to consumers. In fact, almost any product can and will be produced so long as there is a buyer for it.

23. What is a modern market?

The term market, as used by economists, is an extension of the ancient idea of a market as a place where people gather to buy and sell goods. In former days part of a town was kept as the market or marketplace, and people would travel many kilometres on special market-days in order to buy and sell various commodities.

Today, however, markets such as the world sugar market, the gold market and the cotton market do not need to have any fixed geographical location. Such a market is simply a set of conditions permitting buyers and sellers to work together.

The term market refers to the group of consumers or organizations that is interested in the product, has the resources to purchase the product, and is permitted by law and other regulations to acquire the product.

24. How do economists classify markets?

Economists classify markets according to conditions that prevail in them. They ask questions like the following: How many supplies are there? Do they have any influence over price? How much competition is there between firms? Are all firms in the market selling exactly the same product, or simply similar one? Is it easy or difficult for new firms to enter the market? The answer to these questions helps to determine market structure, or the nature and degree of competition among firms operating in the same market. For example, one market may be highly competitive because a large number of firms produce similar products. Another may be less competitive because of fewer firms, or because the products made by each are different or unique.

In short, markets can be classified according to certain structural characteristics that are shared by most firms in the market. Economists have names for these different market structures: pure competition, monopolistic competition, oligopoly, and monopoly.