Market Mechanism

The market mechanism represents a set of interdependent methods and levers of economic impact on production, exchange, distribution and consumption in the system of market laws and commodity-money relations.

Famous American economists Samuelson and Nordhaus define the market mechanism for regulating the economy as a form of economic organization, where individual consumers and producers through the market interact to solve common economic problems.

The Polish economist Balcerowicz sees the market mechanism as a way of maintaining the balance necessary between supply and demand in the horizontal direction. In his opinion, only those economic systems in which the market mechanism is the main way of distribution and coordination of goods can be called a market system.

A market that operates freely in reality carries the elements of a free market. It operates natural and unnatural monopolistic-type entities that seek to retain high prices and therefore interfere with the free movement of resources, which leads to limited access to markets.

Distortion of market processes can occur under the influence of inflation, incorrect policy of the state in the field of economy, miscalculations of entrepreneurs, lack of commercial awareness and other reasons.

The development of distortions in this direction can continue until the market mechanism begins to operate. In this case, he acts as a limit. Under his influence, despite all the distortions and deformations, prices will change due to the impact on them of supply and demand, and investment flows, resource flows will continue to be guided by fluctuations in demand. Remain inviolable and other links of the market mechanism, which preserves the viability of the market.

The market mechanism (market economy) functions due to the presence in this system of important components, which in general constitute the mechanism of the market. These most important elements are, first of all, producers and consumers. Interaction between them is established as an exchange of results of activity. Producers act as suppliers of a new product, consumers - as buyers. Consumption is a logical continuation of the production process, in which the goods are processed by users.

The next element is economic isolation, conditioned by a private form of ownership or mixed. The third element is prices. This is an important element, since prices reflect the essence of the mutual development of supply and demand in the market. The fourth element is demand and supply. They, like prices, are the main elements of the market, providing a link between consumers of goods and their producers. The fifth element is competition. It maximizes profits and promotes expansion of production.

A competitive market mechanism is a way of interaction between market actors and a mechanism for the free regulation of its proportions. Economist A. Smith called competition "invisible hand" of the market. The main function of competition is to determine the magnitude of economic regulators, such as price, interest rate , rate of return, and others.

Competition is the freedom of participation of economic units in any economic sector. Such freedom is necessary for adapting the economy to technology changes, supply of resources or consumer tastes. The main advantage of the market is that the efficiency of its production is constantly stimulated. The object of competition is price and production costs, design and product quality. Competition is characterized by the ability to develop scientific and technical progress, respond to changes in demand, equalize the rate of return and the level of wages in the sectors of the national economy.