MARKET ECONOMY

A market economy is an economy in which decisions regarding investment, production, and distribution are based on market determined supply and demand,and prices of goods and services are determined in a free price system. The major defining characteristic of a market economy is that investment decisions and the allocation of producer goods are mainly made by cooperative negotiation through markets. This is contrasted with a so-called planned economy, where investment and production decisions are embodied in a plan of production established by a state or other body with control over economic resources. Market economies can range from regulated markets to various forms of state-owned interventionist variants. In reality, market economies and free markets do not exist in "pure" form, since societies and governments all regulate them to varying degrees. Different perspectives exist as to how strong a role the government should have in both guiding and regulating the market economies and addressing (or not addressing) the inequalities the market naturally produces since some producers are always "better" than others. Most existing market economies include a degree of state economic planning or state-directed activity, and are thus classified as mixed economies. The term free-market economy is sometimes used synonymously with market economy. Market economies do not logically presuppose the existence of private ownership of the means of production. A market economy can and often does consist of a mix of various types of cooperatives, collectives, or autonomous state agencies that acquire and exchange capital goods in capital markets. These all utilize a market determined free price system to allocate capital goods and labor.There are many variations of market socialism, some of which involve employee-owned enterprises based on self-management; as well as models that involve public ownership of the means of production where capital goods are allocated through markets CAPITALISM Capitalism generally refers to economic system where the means of production are largely or entirely privately owned and operated for a profit, structured on the process of capital accumulation. In general, in capitalist systems investment, distribution, income, and prices are determined by markets, whether regulated or unregulated. There are different variations of capitalism with different relationships to markets. In Laissez-faire and free market variations of capitalism, markets are utilized most extensively with minimal or no state intervention and regulation over prices and the supply of goods and services. In interventionist, welfare capitalism and mixed economies, markets continue to play a dominant role but are regulated to some extent by government in order to correct market failures or to promote social welfare. In state capitalist systems, markets are relied upon the least, with the state relying heavily on either indirect economic planning and/or state-owned enterprises to accumulate capital. Capitalism has been dominant in the Western world since the end of feudalism, but most feel[who?] that the term "mixed economies" more precisely describes most contemporary economies, due to their containing both private-owned and state-owned enterprises. In capitalism, prices determine the demand-supply scale. For example, higher demand for certain goods and services lead to higher prices and lower demand for certain goods lead to lower prices.