We have long been accustomed to living in a market economy, and do not even think about how it differs from other forms of economic systems. It has become a natural result of the evolution of forms of human management and has its own specifics. It is the principles of a market economy that are its fundamental difference, for example, from the planned type. Let's talk about the main principles, without which the existence of the market is impossible.
The concept of a market economy
Humanity at the dawn of its history began to enter into economic relations. As soon as excesses of the produced product appear, a system of distribution and redistribution begins to form. The subsistence economy naturally grew into an economy, which was then transformed into a market economy. The formation of the market has been going on for centuries. This is a natural process due to various factors. Therefore, the basic principles of a market economy are not someone invented and introduced rules, they have grown out of the specifics of the interaction of people in an exchange.
Distinctive features of a market economy
The market economy is always compared with the planned one; these are two polar forms of management. Therefore, the distinctive characteristics of the market can only be detected by comparing these two forms. The market economy is the free formation of supply and demand, and the free formation of prices, and the planned one is the directive regulation of the production of goods and setting prices “from above”. Also, the initiator of the creation of new production companies in the market economy is the entrepreneur, and in the planned economy the state. A planned economy “has” social obligations to the population (provides everyone with work, minimum wages), while the market economy does not have such obligations, therefore, for example, unemployment may arise. Today, the principles of organizing a market economy have become classics; almost no one doubts them. However, reality makes its own adjustments, and you can see that all developed economies of the world are on the way of mixing the two main types of economic systems. So, in Norway, for example, there is state regulation of certain areas of the economy (oil, energy) and redistribution of goods in order to ensure social justice.
Basic principles
A market economy today is closely associated with democratic principles, although in reality there is no such strict correlation. But the market presupposes the obligatory presence of economic freedoms, private property and equal opportunities for all. Modern market models suggest the variability of models, researchers find different interpretations of market mechanisms, their adaptation to the realities of the country, to its traditions. But the basic principles of a market economy are the principles of freedoms, competition, responsibility and the resulting postulates.
Business freedom
The market implies the freedom of economic self-determination of a person. He can do business or work for an entrepreneur or state. If he decides to open his own business, then he always has the freedom to choose the sphere of activity, partners, the form of management. Only restrictions are imposed on him by law. That is, everything that is not prohibited by law, a person can do, in accordance with their interests and capabilities. No one can force him into entrepreneurial activity. The market provides opportunities, and a person has the right to use them or refuse them. The basis of a person’s choice within the market is his personal interest, benefit.
Pricing freedom
The basic principles of the functioning of a market economy require free pricing. Market mechanisms influence the value of a product: competition, market saturation, as well as features of the product itself and consumer attitudes towards it. The main mechanisms of pricing is the balance between supply and demand. High supply puts pressure on the price, lowering it, and high demand, on the contrary, stimulates the growth of the cost of goods or services. But the price should not be regulated by the state. In modern conditions, the state still takes charge of the price of some goods, for example, socially significant: bread, milk, utility tariffs.
Self-regulation
All the principles of a market economy come from the fact that the only regulator of economic activity is the market. And it is characterized by such signs as unregulated demand, price and supply. All these factors come into interaction, and there is a market adjustment of the economic activity of entrepreneurs. The market promotes the redistribution of resources, their flow from low-margin areas of production in more profitable revenue areas. When filling the market with a large number of offers, the entrepreneur begins to search for new niches and opportunities. All this allows the consumer to get more goods and services at affordable prices, and also develops production and technology.
Competition
Considering the principles of the market system of the economy, we should recall competition. It is the main driving force of production. Competition involves economic rivalry of entrepreneurs in one market. Businessmen are striving to improve their product, under pressure from rivals they can reduce prices, they use marketing tools in the competition. Only competition allows markets to grow and grow. There are three main types of competition: perfect, oligopoly and monopoly. Only the first type implies the equality of players; in other forms of competition, individual players have advantages that they use to influence the consumer and make a profit.
Equality
The market economy is based on the original principle of equal rights of all business entities, regardless of ownership. This means that all subjects of the economy have equal rights, opportunities and responsibilities. Everyone must pay taxes, comply with laws, and for their failure to receive adequate and equal punishment. If someone in society is given preferences and benefits, then this violates the principle of equality. This principle assumes fair competition when all market participants have equal opportunities in access to finance, means of production, etc. However, in modern forms of the market, the state assumes the right to facilitate the conduct of business for certain categories of entrepreneurs. For example, people with disabilities, beginning businessmen, social entrepreneurs.
Self-financing
The modern market economy is based on the principles of responsibility, including financial. An entrepreneur, organizing a business, invests his personal funds in it: time, money, intellectual resources. The market suggests that a businessman risks his property while conducting business activities. This teaches a businessman to count his abilities, to live within his means. The need to invest their money makes the merchant show enterprise, prudence, and teaches to keep tight control and accounting of spending. The risk of losing one’s money and being liable for bankruptcy before the law imposes a restrictive effect on the entrepreneurial imagination.
Contractual relationship
The basic economic principles of a market economy have long been built on the interaction of people who are connected by a special relationship - contractual. Previously, verbal agreement between people was enough. And today there are strong associations in many cultures associated with the merchant's word, with a handshake, as a guarantor of certain actions. Today, a contract is a special type of document, which fixes the conditions for concluding a transaction, and stipulates the consequences in case of non-performance of the contract, the rights and obligations of the parties. The contractual form of interaction between economic entities increases their responsibility and independence.
Economic responsibility
All the principles of a market economy ultimately lead to the idea of ​​responsibility by the entrepreneur for their economic actions. The businessman must understand that other people will have to compensate for the damage caused to them. The guarantee of fulfillment of obligations and responsibility for non-fulfillment of agreements make the merchant take his business more seriously. Although the market mechanism in the first place still does not come from legal, but namely economic responsibility. It consists in the fact that an entrepreneur who has not fulfilled the contract loses his funds, and this risk makes him be honest and careful.