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Economics - Assignment Example

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Market economy is an economy in which prices are set by the demand and supply of a particular commodity or service (Campbell & Stanley, 2005). In such an economy there is not government intervention and it is also known as free…
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Download file to see previous pages... ple believe that market system can help in creating a positive investment climate because the society as a whole decides upon what they want to pay for a particular good and services. This decision cannot be influenced by any other force except buyers and sellers. The idea is that the buyers and sellers will work out the price and this price will be just. Because it is set by the people everyone will be happy. Also firms will try to avail the opportunity to earn profits and will come and invest. They will supply what they think people will demand and everyone in the society will benefit or in other words investment climate will improve.
Market system is also supported by many due to the increased competition between firms. When many firms are operating and there are no major subsidies or restrictions laid down by the government then all firms have equal opportunity to excel. This brings all the firms on the same level and then innovation increases as the firms want to do better than the other firms. As a result consumers get a variety of products and monopoly of suppliers is hindered. This also improves the investment climate of a country.
If a firm comes up with a great idea then it temporarily enjoys abnormal profits. But because there are no trade barriers other companies also try to replicate the same idea and the profits of the first firm come back to normal. This is how market system encourages a positive investment climate. The interests of the firms, the consumers and the society as a whole are preserved and this is why many people think market system as the best mechanism for allocating scarce resources.
In a market system of economy people’s need are catered well. Firms supply product or services if the buyers demand a particular product or services. Also people spend money on things they think will improve their life style so they are more contended.
People also believe that resources are distributed evenly in a market economy. This is because ...Download file to see next pagesRead More
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