21. What is a market economy?

There are three major kinds of economic systems: traditional, command and market.

In a market economy, the questions of What, How and for Whom to produce are made by individuals and firms acting in their own best interests. In economic term a market is an arrangement that allows buyers and sellers to come together to conduct transactions.

Since consumers like products with low prices and high quality, producers in a market economy will try to supply such products. Those who make the best products for the lowest prices will make profits and stay in business. Other producers will either go out of business or switch to different products consumer can buy.

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 third advantage of the market economy is the lack of significant government intervention.

22. What advantages does a market economy have?

A market economy has several major advantages that traditional and command economies do not have. 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. Producers are free to make whatever they think will sell. They are also free to produce their products in the most efficient manner. 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. As long as there is competition among producers, the market economy generally takes care of itself.

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.

Whenever people who are willing to sell a commodity contact people who are willing to buy it, a market for that commodity is created. Buyers and sellers may meet in person, or they may communicate in some other way: by telephone or through their agents. In a perfect market, communications are easy, buyers and sellers are numerous and competition is completely free. There are, however, no really perfect markets.