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√ Understanding of the Market Economy, Characteristics, Strengths and Weaknesses Complete

Definition of Market Economy, Characteristics, Strengths and Weaknesses Complete - Basically the market economy is known as liberal economy. Before discussing further about the market economy, it helps us to know what the economic system itself is like. We already know the ins and outs of the economic problems being faced by countries in the world. And every economic problem they face can only be solved by each country's economic system. Of course, the economic system of each country is different.

Definition of Market Economy, Characteristics, Strengths and Weaknesses Complete

Let's review the full discussion here.

Definition of Market Economy

The existence of differences in economic systems in each country in the world occurs because of differences in the ownership of resources and differences in the government system of these countries. One of them is about understanding of the market economy system which we will talk about below. Before continuing, what is the economic system? There is also an understanding of the economic system itself is the concept of a combination of rules or methods that become one unit and are used to achieve goals in the economy.

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A system can be likened to small circles that are interconnected with one another. There are also small circles that are a subsystem. Then indirectly these subsystems interact with each other and eventually form a unified system in a large circle that moves according to existing rules.

Economic System Functions

After knowing a more detailed understanding of the economic system, the following are the functions of the economic system, including:

  1. There is a driving force for production.
  2. How The method or method used to organize individual activities.
  3. Creating certain mechanisms so that the distribution of goods and services is carried out properly.

Of the three main functions of the economic system above, the economic system is grouped into 4 types which are used as solutions to economic problems, including:

  1. Traditional Economic System
  2. Market Economic System (Liberal/Free)
  3. Command economy system (Centralized)
  4. Mixed Economic System

This article will discuss about understanding of the market economy. The market economic system or liberal economic system is an economic system in which the management of the economy is governed by market forces (demand and supply). This economic system determines the freedom of individuals in carrying out economic activities. This means that every individual is recognized and they are free to compete. Every economic actor is encouraged to do his best so that he can get the maximum profit. All individual rights can be fulfilled by using this economic system.

Another definition of a market economy system is an economic system in which all economic activities, starting from production, distribution and consumption, are left entirely to the market mechanism. This economic system is in accordance with the teachings of Adam Smith, in his book entitled An Inquiry Into the Nature and Causes of the Wealth of Nations that a market economy system has the following characteristics:

Characteristics of a Market Economy System

  1. The right of each individual to receive recognition. For example, everyone is free to own goods, including goods used as capital. Everyone is also free to use the goods and services they own.
  2. Humans who carry out a market economic system are homo economicus,
  3. The existence of consumer sovereignty and freedom in consumption,
  4. The market economic system implements a system of free competition,
  5. In a profit-seeking motive centered on self-interest,
  6. The process of the market economic system the role of capital is very important,
  7. The role of government in a market economy system is limited. The government does not intervene in the market economy system,
  8. In a market economy system, activities aimed at earning profits,
  9. All economic activities are carried out by the community (private sector),
  10. Competition is free
  11. The role of capital is very vital The goodness of the economic system, among others:
    • Foster community initiatives and creations in managing economic activities
    • Every individual is free to have the sources of production
    • The existence of a market economy system raises competition to advance
    • The goods produced have high quality, because goods that are not of high quality will not sell well in the market
    • High efficiency and effectiveness because every economic action is based on profit motives
Definition of Market Economy, Characteristics, Strengths and Weaknesses

The Strengths and Weaknesses of the Market Economy System

After knowing how understanding of the market economy along with its characteristics, the advantages and disadvantages of the market economic system are explained below, including:

The advantages of a market economy system are:

  1. Each person is free to determine his own economy,
  2. Each person is free to have his own means of production,
  3. The existence of faster economic activity due to competition,
  4. Production is based on the needs of society.

While the weaknesses of the market economic system include:

  1. The market economic system can result in the exploitation of other people,
  2. The market economic system can also give rise to trade monopolies.
  3. The market economic system can also lead to income inequality,
  4. The market economy system is also vulnerable to economic crises.

Thus our discussion this time about Definition of Market Economy, Characteristics, Strengths and Weaknesses Complete, Hopefully it can provide new insights for all of us and can be useful. That is all and thank you.

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