A market economy is economy in which the prices of the products and services are chosen in a free price system that is decided by supply and demand. It began around the late 18th century, after the Industrial Revolution. A key work was Adam Smith's The Wealth of Nations, 1776.
Market economics has been widely used because of its efficiency (ability to work well). However, it has also been criticized for its selfishness and the difference between the rich and poor. In the real world, market economies are not purely market economies, as societies and governments control them in some ways instead of market forces. The expression free-market economy is sometimes used as the same as market economy. Nobel Prize in Economics winner Ludwig von Mises said that a market economy is still a market economy even if the government joins in pricing.
In a market economy, the following will be true:
- The Factors of production are privately owned. Production occurs from an initiative of the owners.
- The only way to get revenue is through services, or through the profits of private companies.
- There is no planned economy
- There is no regulatory economics
- The market participants are free to choose the products they buy, the profession they exercise, and whether to save or invest their money.
Sometimes, market economy does not work as expected, the following may be observed:
- For certain goods or services there may be monopolies or cartels.
- Some goods may be public.
- There may be externalities
- There may be Information asymmetry, that is not all participants have the same information
- Altvater, E. (1993). The Future of the Market: an essay on the regulation of money and nature after the collapse of "actually existing socialism. Verso. pp. 57.
- Yoon, Suk-hee (2009). Chul-hwan Kang. ed (in Korean). 완자 중등 사회 3. South Korea: Visang. pp. 70. ISBN 978-89-5752-815-0.
- Altvater, E. (1993). The Future of the Market: An Essay on the Regulation of Money and Nature After the Collapse of "Actually Existing Socialism. Verso. pp. 237–238.
- Tucker, Irvin B. p 491. Macroeconomics for Today. West Publishing. p. 491
- F. A. Hayek, The Fatal Conceit: The Errors of Socialism (University of Chicago Press, 1991), p. 117.
- "XXVII. THE GOVERNMENT AND THE MARKET: The Intervention". mises.org. http://mises.org/humanaction/chap27sec2.asp. Retrieved 14 July 2010.