Basic principles of market economy

We have long been accustomed to the fact that we live 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 man's forms of management and has its own specifics. It is the principles of a market economy that are its fundamental difference, for example, from a planned type. Let's talk about the main principles, without which the existence of a market is impossible.

The concept of market economy

At the dawn of its history, mankind began to enter into economic relations. As soon as there are surpluses of the produced product, the system of distribution and redistribution begins to be formed. The natural economy naturally grew into an economy, which then transformed into a market economy. The formation of the market has been going on for more than one century. This is a natural process, due to various factors. Therefore, the basic principles of a market economy - it's not someone invented and introduced rules, they grew out of the specifics of people's interaction in the 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 be found only in the course of comparing these two forms. Market economy is the free formation of demand and supply, and free formation of prices, and planned - the directive regulation of the release of goods and the establishment of prices "from above." Also, the entrepreneur is the initiator of the creation of new production companies in the market economy, and the state is the planned one. The planned economy "has" social obligations to the population (provides all with work, a minimum wage), but the market does not have such obligations, so unemployment, for example, may arise. Today, the principles of organizing a market economy have become classics, they almost no one doubts. However, reality makes its own adjustments, and one can see that all developed economies of the world follow the path of mixing the two main types of economic systems. So, in Norway, for example, there is a state regulation of some spheres of the economy (oil production, energy) and redistribution of goods in order to ensure social justice.

Basic principles

Market economy today is closely associated with democratic principles, although in reality there is no such strong correlation. But the market assumes the obligatory presence of economic freedoms, private property and equal opportunities for all. Modern market models assume variability of models, researchers disclose 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 freedom, competition, responsibility and the ensuing postulates.

Freedom of Entrepreneurship

The market presupposes the freedom of economic self-determination of a person. He can do business or work for hire on an entrepreneur or state. If he decides to open his business, then he always has the freedom to choose the sphere of activity, the partners, the form of management. It is subject only to restrictions by law. That is, anything that is not prohibited by law, a person can do, in accordance with their interests and opportunities. No one can force him to do business. The market provides opportunities, and a person has the right to use them or to refuse them. At the heart of a person's choice within the market is his personal interest, benefit.

Freedom of pricing

The basic principles of the functioning of a market economy presuppose a free price setting. The price of the product is influenced by market mechanisms: competition, market saturation, as well as features of the product itself and the consumer's attitude towards it. The main mechanisms of pricing are the balance between supply and demand. A high sentence presses 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 nevertheless takes control of prices for certain goods, for example, socially important: bread, milk, utility tariffs.

Self-regulation

All principles of market economy proceed 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 interact, and a market adjustment of the economic activities of entrepreneurs takes place. The market promotes the redistribution of resources, their flow from low-margin production spheres to more profitable profitable areas. When the market is filled with a large number of proposals, 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, one should also remember the competition. It is the main driving force of production. Competition involves economic rivalry of entrepreneurs in one market. Businessmen are trying to improve their goods, under the pressure of rivals can reduce prices, competition uses marketing tools. Only competition allows the markets to develop and grow. There are three main types of competition: perfect, oligopoly and monopoly. Only the first kind implies the equality of players, in other forms of competition, individual players have the advantages that they use to influence the consumer and make profit.

Equality

The market economy is based on the initial principle of equality of all economic entities, regardless of the form of ownership. This means that all subjects of the economy have equal rights, opportunities and responsibilities. Everyone must pay taxes, observe laws, and for non-fulfillment of them receive an adequate and equal punishment. If someone in the society are given preferences and benefits, then this violates the principle of equality. This principle implies 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 takes upon itself the right to facilitate certain categories of entrepreneurs doing business. For example, people with disabilities, beginning businessmen, social entrepreneurs.

Self-financing

The modern market economy is based on the principles of responsibility, including financial ones. An entrepreneur, organizing a business, invests in him his personal funds: time, money, intellectual resources. The market assumes that a businessman risks his property while doing business. This encourages the businessman to count on his opportunities, to live within his means. The need to invest means compels a businessman to be enterprising, prudent, teaches to maintain tight control and account for spending. The risk of losing their funds and being in charge of bankruptcy before the law imposes a limiting effect on entrepreneurial fantasy.

Contractual relationship

The basic economic principles of a market economy have long been built on the interaction of people, which are linked by special relations - contractual ones. Before, there was enough oral agreement between people. And today there are stable associations in many cultures related to the merchant's word, with a handshake, as a guarantor of certain actions. Today the contract is a special kind of documents in which the conditions for concluding a transaction are fixed, the consequences in case of non-fulfillment of the contract, the rights and obligations of the parties are stipulated. 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 of an entrepreneur for his economic activities. The businessman should understand that the damage caused to them by other people will have to be compensated. The guarantee of fulfillment of obligations and responsibility for non-fulfillment of agreements make the merchant to take his case seriously. Although the market mechanism first of all does not come from legal, but economic responsibility. It consists in the fact that an entrepreneur who has not fulfilled the contract loses his means, and this risk makes him to be honest and cautious.