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Market economy

Economic systems are usually defined as either capitalist, socialist or mixed. However it is possible to classify economic systems according to the method of resource allocation and control (market economy or command economy) and to the type of property ownership (private ownership or public ownership).

The ownership of factors of production can be viewed as a transition from complete private ownership at one end to complete public ownership at the other. In reality, no country belongs wholly at one and or the other. For example, the United States of America is considered to be the prime example of private enterprise, yet the government owns some factors of production and actively produces in such sectors of economy as education, the military, the postal service and certain utilities.

In market economy, two societal units are very important: the individual and the firm. Individuals own resources and consume products, while firms use resources and produce products. The market mechanism involves an interaction of price, quantity, supply, and demand of resources and products.

The key factors that make the market economy work are consumer sovereignty and the freedom of the enterprise to operate the market.

The market economy has been highly successful in industrial countries, especially in the USA. But market economy in the USA is not perfect owing to three major factors: large corporations, labor unions, and the government. The large corporations can reduce market procedures somewhat by exerting control over the purchase of resources or the resale of products. Because of the large size of the firm and relative smallness of each individual shareholder, there is a vide gap between ownership and control of decision making. Decision may not be strictly motivated by the market.

Labor unions evolved to response to the power exerted by the owners and managers of business over the labor market. Unions have won tremendous benefits in terms of salaries, fringe benefits, work conditions, but market forces have been disrupted seriously. Many unions control entry into the work force and restrict the freedom of workers to change occupation in response to supply and demand.

Answer the following questions:

1.How are economic systems usually defined?

2. How can we usually classify economic systems?

3. What can be viewed as a transition from complete private ownership to complete public ownership?

4. Which units are very important in market economy?

5. What does the market mechanism involve?

6. Can we name market economy in the USA perfect?

7. How can large corporations reduce market procedures?

8. Why there is a wide gap between ownership and control of decision making?

9. What benefits have unions won?

10. What do many unions control and restrict?

Exercises in word study:

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