How a Market Economy Work? Advantages of a Market Economy

Market Economy Characteristics

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  Individuals are permitted to profit from private ownership of businesses and real estate. As under a command economy, ownership rights do not simply belong to the government.
  
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  Market participants are free to manufacture, sell, and buy whatever they choose, subject to government laws.
  
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  Individuals trying to sell their offerings to the highest bidder while paying the least for goods and services that they require drive the market (profit motive).
  
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  Producers compete, which keeps pricing fair and assures efficient production and supply.
  
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  Players have equal access to relevant information for making decisions.
  
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  The government has a limited role in a market economy, but it serves as a regulator to promote fair play and prevent the formation of monopolies.
  

Property rights[edit]
For market economies to function efficiently, governments must establish clearly defined and enforceable property rights for assets and capital goods. However, property rights does not specifically mean private property rights and market economies do not logically presuppose the existence of private ownership of the means of production.
Market economies can and often do include various types of cooperatives or autonomous state-owned enterprises that acquire capital goods and raw materials in capital markets.
These enterprises utilize a market-determined free price system to allocate capital goods and labor.[7] In addition, there are many variations of market socialism where the majority of capital assets are socially owned with markets allocating resources between socially owned firms. These models range from systems based on employee-owned enterprises based on self-management to a combination of public ownership of the means of production with factor markets.
Supply and demand[edit]
Market economies rely upon a price system to signal market actors to adjust production and investment. Price formation relies on the interaction of supply and demand to reach or approximate an equilibrium where unit price for a particular good or service is at a point where the quantity demanded equals the quantity supplied.
Governments can intervene by establishing price ceilings or price floors in specific markets (such as minimum wage laws in the labor market), or use fiscal policy to discourage certain consumer behavior or to address market externalities generated by certain transactions (Pigovian taxes).
Different perspectives exist on the role of government in both regulating and guiding market economies and in addressing social inequalities produced by markets. Fundamentally, a market economy requires that a price system affected by supply and demand exists as the primary mechanism for allocating resources irrespective of the level of regulation.
Market economies around the world share several key characteristics. The majority of goods and services are privately owned, for example. This means that business owners can sell their business for profit. Ownership is valuable in a market economy. People living in this type of economy can buy any product they desire as long as they are able to afford it.
This requires money, which becomes the key to this type of society. In order to obtain money, individuals must sell something. In this case, selling their time to employers is the most common way to earn money. Goods are distributed to individuals with the most money.
Self interest motivates action, suppliers sell at the highest possible price and consumers negotiate the lowest possible price. This self interest provides an accurate reflection of supply and demand, which helps control prices. Additionally, the focus of the suppliers in market economies is on increasing profit rather than ensuring that basic public needs are met.

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