Ashurkova V.V., supervisor Usachåv V.A.
Donetsk National University of Economics and Trade named
after Mykhailo Tugan-Baranovsky, Ukraine
The market economy
The modern market economy is populated by three types of economic agents, whose interaction constitutes economic activity: consumers, producers, and the government. The main purpose of the economy is to produce goods and services for the satisfaction of the needs of consumers. Consumers, typically representing households, spend their income to buy consumer goods and services or to save.
How does a consumer distribute the income earned by him amongst a variety of goods and services offered in the market? [2, p. 274].
There are different factors affecting his decisions. For instance, a fall in the price of a good or service will increase his consumption of it, while a rise in its price will have the opposite effect. Then a rise in his real income will naturally result in an increased consumption of goods and services, a fall in real income having the opposite effect. [1, p. 402].
The pattern of consumer expenditure is also influenced by tastes, consumer preferences and family circumstances. As incomes rise, expenditure on basic goods will form a smaller proportion of total spending. The terms "necessities" and "luxuries" are of little use in analysing consumer expenditure because what are today's luxuries will probably be tomorrow's necessities. It should be stressed here, that some customers, however, want to have high-quality products even when quality means a higher price. Some other customers prefer foreign products. The amount spent on goods and services and changes in this variable have a big impact on the
level of economic activity: the increase in consumer spending creates new employment opportunities and causes better living standards. [2, p. 274].
In every economy the work of different firms has to be coordinated. In a market economy this coordination is achieved by means of markets. Nevertheless the debate over the role for Government in a market economy is continuing and the issue is being widely discussed at the present time. An economy based on free enterprise is generally characterised by private ownership and initiative, with a relative absence of government involvement. However, government intervention has been found necessary from time to time to ensure that economic opportunities are fair, to dampen inflation and to stimulate growth.
Government plays a big role in the free enterprise system. Federal, state and local governments tax, regulate, and support business. [2, p. 274].
There are agencies to regulate safety, health, environment, transport, communications, trade, labour relations, and finances. Regulation ensures that business serves the best interests of the people as a whole.
Some industries — nuclear power, for instance — have been regulated more closely over the last few years than ever before. In others the trend has been towards deregulation or reduction of administrative burden on the economy.
The economy has a tradition of government intervention for specific economic purposes — including controlling inflation, limiting monopoly, protecting the consumer, providing for the poor. The government also affects the economy by controlling the money supply and the use of credit.
Although state regulation in the modern market economy is carried out in a much smaller scale than it used to be in the command-administrative system, the economic role of government is still high enough, especially compared with the system of free competition. [3, p. 37].
State regulation of economy has become necessary for the implementation of social policy, and general strategy of socialization in the broadest sense. Collective consumption or satisfaction of social needs (healthcare, education, support for the poor, organization of scientific research, habitat protection, etc.) is impossible without the application of public instruments and institutions. State regulation of economy, thus, is determined by the emergence of new economic needs market cannot cope with by its nature.
The facts run that with the development of market economy the economic and social problems emerged and intensified, which cannot be automatically solved basing on private property. There occurred the need for significant investment, marginal or uneconomic in terms of private capital, but needed to continue the reproduction on a national scale, while industry and general business crises, mass unemployment, violation of the monetary circulation, and competitive pressure in global markets required government economic policy. [1, p. 402].
1. Batonda G. Approaches to relationship development process in inter – firm networks / The modern market economy. – 2010. – Vol.37, N. 10. – P. 402.
2. Harrington H.J. Business process improvement: the breakthrough strategy for total quality, productivity. - McGrawHill, 2010. – P.274.
3. Thorelli H.B. Networks: between markets and hierarchies / H.B. Thorelli // The modern market economy. 2011. – Vol. 7, N. l. – P. 37.