Market Economy

Have you ever walked through a busy Street market? People push their way through crowds of others in order to reach the stalls first. The air is full of deafening shouts. Stall owners yell toadvertise their goods. Buyers cry out their orders. It´s hard to imagine, but behind this noisy confusion is a very logical economic theory: the market economy.
The market economy is sometimes called thefree market. A free market, the only reason why things are bought and sold is because there is a demand for them. Prices for goods and services are simply what people are prepared to pay. The marketeconomy is not really controlled by anyone. It controls itself.
The role of the company in the free market is to supply what people want. However, companies need an incentive. The incentive is profit.There are two ways for companies to make a profit. The first way is to raise their prices. The second way is to reduce their production costs. And this brings to us two more features of the marketeconomy: competition and technology.
Competition exists in a free market because, theoretically, anyone can be a producer. This means that companies have to compete with each other for a share of themarket. Competition is good for consumers because it helps to control prices and quality. If customers aren´t happy with a product or service, or if they can´t afford it, they will go to a competitor.Technology exists in a free market because producers need ways to reduce their costs. They cannot buy cheaper raw materials. Instead, they must make better use of time and labour. Technology is the useof tools and machines to do jobs in a better way. This helps companies produce more goods in less time and with less effort. The result: more profit.
People often think that most economies are freemarkets. However, at the macroeconomic level, a truly free market economy does not exist anywhere in the world. This is because all governments set limits in order to control the economy. Some...