The market economy is a complex system of relationships between producers and consumers. This system exists and develops on the basis of a variety of forms of ownership, market pricing and commodity-money relations, subject to limited intervention of state bodies in the activities of economic entities.
Instructions
Step 1
The market is a historically conditioned form of commodity exchange. Initially, natural production was ubiquitous, in which each person himself produced products to satisfy his needs. At a certain moment, people realized that the subsistence economy was not able to meet the growing needs and began to exchange some goods for others, so barter exchange arose.
Step 2
But it was inconvenient to exchange dissimilar goods for each other, then a universal equivalent or a special kind of goods - money - was invented. As a result, commodity production arose. In a market economy, people produce goods in order to then sell them, get money and purchase goods, which are necessary to satisfy all vital needs. The main condition for the emergence of the market was the division and specialization of labor.
Step 3
For the market mechanism to work, the market must fulfill its function. The regulatory function of the market is manifested in the fact that the market constantly influences the economic activity of all economic entities, they evaluate everything that happens in the market. For example, commodity producers expand their production if they see that prices in the market are increasing. The market, however, cannot regulate all processes, resulting in such consequences of the market economy as inflation and unemployment.
Step 4
The market accumulates information on the activities of a huge number of individual entities, so it also performs an information function. Each economic entity uses this information to adjust its activities and adapt it to market demands.
Step 5
The most important function of the market is pricing. Under the influence of the demand of buyers and the supply of manufacturing companies in a competitive environment, an equilibrium price arises, which is guided by all market participants. The market price is formed by comparing the costs of producers for the production of goods and the usefulness of the exchanged goods for consumers.
Step 6
The market acts as an intermediary, since it is in the marketplace that producers and buyers meet. A commodity-money exchange takes place on the market, in which the consumer purchases a product that fully satisfies his needs, and the seller enters into a profitable deal.
Step 7
The market is a highly competitive system. It allows you to select the most effective, successful and active commodity producers. Inefficient producers, on the other hand, cannot withstand competition and leave the market. This is the manifestation of the sanitary function of the market.
