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What is the market economy and its most important theories

 A market economy is a type of economic system; Where individuals and enterprises obtain freedom to exchange and transfer services and goods without any barriers, and resources are allocated through this system by relying on the market institution, and the price mechanism associated with the equation of demand (consumption) and supply (production), without any interference from the state in the production process. A market economy is defined as an economic system based on granting freedoms to individuals; And that they have the right to practice the economic activities they want, as it depends on the private ownership of the means used in production, and it is also called a free economy, and among other definitions of a market economy is a system in which economic decisions and prices of services and goods depend on the interactions between individual companies in a country. .


Market economy theories:

Where the market economy relies on theories aiming to study its content and performance, and it also tries to explain matters related to the exchange value of commodities, or known as the prevailing price, and the following is information about the main theories of the market economy:


The traditional theory:

It is an intellectual theory related to the economic thinkers Adam Smith, David Ricardo, and William Petty; They were interested in studying the performance of the market economy, and according to this theory, the value of commodities is determined based on the amount of labor devoted to its production, and it is practically not applied until after the implementation of the exchange process, and the market price that is affected by the fluctuations associated with changing conditions, and the nature of the behavior of both merchants and consumers, is reached They are two forces that contradict each other, when their interests meet together, the market price is produced, and achieving balance in the exchange of goods is an important condition for the producers to continue implementing the production process, and the emergence of any changes in demand and supply affect the price of the commodity, as it may decrease, increase or equal its value.


 Marxist theory:

It is an intellectual theory related to the thinker Karl Marx. As he used it to criticize the traditional theory (capitalism), and relied on it in explaining the market economy by using the method of materialistic dialectics to analyze this economy, and he also agreed with the owners of the traditional trend about determining the value of a commodity with the time spent working on its production, but it is not an eternal relationship but is subject to changes Diverse with changing conditions prevailing in society, and Marx was greatly concerned with the presence of capital in the hands of a few producers, and their control in determining the value of goods within the markets.


Boundary theory:

It is an intellectual theory that follows the new capitalist thinkers, such as: von Bafferke and Alfred Marshall, and this theory believes that the market economy appears as a result of the relationship between individuals and things; Meaning the interest in focusing on the utility of the commodity, and this utility contributes to determining the value of the commodity; Because man is constantly looking for a way to satisfy his needs and achieve the best profits, and he seeks to determine the value of a specific thing based on the marginal benefit that can be obtained from it; the marginal value expresses the relationship between the commodity and the person, and when the human need for a commodity increases, this leads to an increase Its value; Therefore, the market economy is concerned with achieving the best profits by relying on the production of tradable goods that contribute to meeting the desires and needs of individuals from consumers.


Principles of a market economy:

Where economic theories contributed to the development of a set of principles that led to the formation of the law on a market economy, and the following information about these principles:



 Private ownership of the means of production:

It is the requirement of the market economy system that the ownership of the means of production be by individuals, and these means constitute the main capital approved through this economy; Therefore, individuals obtain the right to own and control these means, and to use them according to the things appropriate for their individual interests, and they also have the right to trade products in the market with the aim of obtaining profit. This leads to a group of individuals monopolizing the economic surplus compared to individuals who do not own these means and who are keen to work in exchange for a specified salary.


Freedom of Trade and Production:

It is the dependence of the market economy on spontaneous or automatic trading influenced by the various forces of the market; Where the owners of capital are interested in managing their projects according to their own interests, so they are free to choose the method of commercial trading and production; Since the main goal is to reach the largest possible amount of profit. Formulation of prices based on demand and supply: it is one of the main axes that the market economy is concerned with; Where merchants and consumers meet together through the confluence of demand and supply for commodities, and prices represent the focal point of meeting between market players.


 Getting profits under monopoly and competition:

It is considered one of the most important characteristics associated with the economic activity of a market economy, and in-kind or material profit is obtained in the presence of perfect competition, and the absence of any restrictions that determine the prices of goods, and the owners of capital seek to group together within monopolies and contribute to reducing the negative effects Resulting from competition related to their enterprises, and the ultimate goal of these monopolies is to face competition within the markets.

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