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].
References:
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.