The social science that is responsible for studying the processes of production, exchange, and consumption of goods and services is known as the Market economy.
The market on the other side, is the environment that permits 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 get closer to the notion of the market economy, which refers to a social organization aimed at facilitating the production and consumption of goods and services arising from the interplay 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 get involved in the free market to guarantee the absence of monopolies.
The concept of the 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 the talk of a mixed economy to name state and private participation in economic regulation.
Market Economy, Efficiency, and Opportunity Cost.
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- 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 the said requirement.
The economy ensures that the distribution of these goods and services is correct; getting that they can satisfy a greater number of people. For this purpose, it’s necessary to take into account a series of important laws. They’re built 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 derive from this idea is efficiency. It is said that for an economy to produce efficiently, it must start from the basis that to improve the well-being of one person it is necessary to worsen that of another, so that we must always seek to favor those who have fewer possibilities and reduce profits the ones that more.
It is also important that decisions are always made that advocate for balanced production; that is to say, to manufacture what is necessary, neither scarcely nor abundantly. Taking into account, in turn, what methods will use in production, with what resources and what technology will be established and how much the entire process will cost, based on what can be added from it.
To conclude, it is important to mention another concept that is the opportunity cost. This term refers to the number of goods that it is necessary to stop producing 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.