The market economy differs from a centralized one: the main characteristics, advantages and disadvantages

All economic systems can be conditionally dividedinto two categories: market and administrative-command (planned-centralized). However, in practice, they are rarely found in pure form. But, understanding, than the market economy differs from the centralized one, it is possible to determine to which type the country is closer. Most states of the world today use some tools of the administrative-command system, but do not try to base their national economy on it. The market economy has proved its great effectiveness for the development of society.

Definition

Consider how the market economy differs fromcentralized. The obvious difference is that in the first, all the reasons for investing funds, production and distribution are taken on the basis of the interaction of supply and demand. In a centralized system, everything is determined on the basis of a national development strategy.

The market economy differs fromcentralized, so this is because the state fully controls the use of factors of production. Of course, any government strives for this, and there are no countries in which it does not influence the process of output. The less the degree of this intervention, the more market-oriented the system is. One must understand that the existence of private property does not always indicate that the economy is not an administrative command.

There are many types of centralized systems based on so-called market socialism, which implies the existence of workers' cooperatives.

Characteristics

The transition from a centralized economy to a market economy implies:

• Presence of private property. Most goods and services are produced by non-state enterprises. Owners of private companies can enter into contracts for the purchase, sale or lease of new premises and equipment. So they can make a profit. Of course, there are assets that the law prohibits selling and buying. These include people, their organs and parts of the body.
• The existence of freedom of choice. Owners make a decision on what to produce, how to sell it, whether it is necessary to purchase a new batch of raw materials and purchase new equipment. Freedom of choice is limited only by two factors. First, it is the price at which they are willing to sell their products. Secondly - the volume of capital, at the disposal of the owners.
• Motivation or interest. Buyers seek to purchase the goods they need at the lowest possible price. Vendors, on the other hand, want to make the most profit. However, in the long term, the interaction of these mutually exclusive interests is beneficial to the economy.
• Competition. It forces enterprises to produce goods most effectively. Competition also affects buyers. They compete for goods that are sold at the lowest prices.
• Limitation of state regulation.

Benefits

The way a market economy differs from a centralized one is by its effectiveness. But why does it work better?

• Promotes the production of the most essential goods and services.
• Production is carried out in the most effective way.
• Promotes innovation and the introduction of the latest technologies.
• Only the most efficient enterprises survive and enrich themselves.

disadvantages

The planned-centralized economy allowsit is better to take care of the elderly, minors and patients. The marketplace simply does not have a mechanism for this. Those who care for the needy are also at a disadvantage. They could use their forces and skills to produce goods and services that could be sold for money. Therefore, the economy as a whole also loses.

The growing role of the market economy in the worldforces countries to join forces in order to develop mechanisms at the international level to protect the rights and freedoms of the least vulnerable segments of the population. However, it is important here to try to level out the consequences of another shortcoming of the market economy. After all, it creates conditions in which the society develops according to the scenario developed by the "winners", and the unprotected layers are forced to obey in order to earn their money for food.